October 20, 2014 7:57 pm
China’s grip over rare earths market wanes
China is unlikely to retain control of the global market for rare earths, because users have become more efficient in their consumption and found alternative sources, according to a former adviser at the US Department of Defense.
Prices for rare earths were sent soaring in 2010 after China engaged in a trade war by imposing export restrictions and limiting supply. Shares in rare earth mining companies also rose sharply.
Rare earths such as lanthanum and dysprosium are essential for many advanced technologies, including weapons systems such as cruise missiles, and around 2010 China controlled about 97 per cent of global supply.
However since then, rare earths prices have slumped, and so have the shares of producers including Molycorp of the US and Lynas of Australia.
Eugene Gholz, an economist at the University of Texas who worked on rare earths at the Pentagon in 2010-12, said in a Council on Foreign Relations report that high prices encouraged investment in those non-Chinese suppliers.
Molycorp restarted production at a rare earths mine in California, and Lynas opened a processing plant in Malaysia, helped by support from the Japanese government.
Non-Chinese supplies are more readily available for light rare earths such as lanthanum and praseodymium than for heavy rare earths such as dysprosium and europium. However, for those scarcer materials Chinese export restrictions were not fully effective, and small producers continued to sell to other countries in spite of the official curbs.
There is also now more processing capacity outside China. Rhodia of France is able to extract heavy rare earths from ore supplied by Molycorp and Lynas. Non-Chinese production of heavy rare earths could increase if the economics were more favourable.
Users have also found ways to reduce their demand. For example dysprosium, which is used as an additive in advanced magnets, is needed in relatively large quantities for electric cars, but for other applications its use could be reduced sharply.
Hitachi and a joint venture of Mitsubishi, Daido Steel, and Molycorp are building factories for low-dysprosium magnets, Mr Gholz says.
Cuts in commercial uses can free up more supply for critical strategic uses. The proportion of rare earth demand used for military equipment varies from element to element, but in the US is typically less than 10 per cent of the market.
Mr Gholz said the lesson of the past few years was that the customers had not needed to panic.
“It turned out that a lot of the things the government was worried about were also things that the industry saw as opportunities for making money,” he said.
As the nervousness over global supplies has faded, prices for rare earths have tumbled. Lanthanum oxide, for example, has dropped from $16.26 per kilogramme in 2011 to $3.24 per kg in the second quarter of 2014, according to Lynas.
As a result, Molycorp reported a $450m loss for 2012 and a $386m loss last year. Lynas has also struggled.
However, those facilities would become more profitable if China tried to tighten its rare earth exports again.
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