In a statement, the DOE said, “The report found that several clean energy technologies use materials at risk of supply disruptions in the short term, with risks generally decreasing in the medium and long terms. Supply challenges for five rare earth metals may affect clean energy technology deployment in the years ahead.”

Prices of many of the 16 materials analyzed have been far from stable over the last 12 months and some have in fact seen ten-fold price rises. The pressure on supplies would be further heightened by laws that demand that incandescent light bulbs be phased out.
The 2010 report raised similar fears when China announced its decision to reduce its rare earth export quota. In its wake, the DOE developed the nation’s first critical materials research and development plan. The result is a $20-million amount in the 2012 spending bill towards advancing projects that develop alternate materials, diversify supplies, develop more efficient deployment of rare metals and enable recycling and reuse.

The report recommends that the US begin development of rare earth extraction, processing and manufacturing capabilities and also collaborate with Europe and Japan in attempts to reduce global scarcity.

PricewaterhouseCoopers (PwC) has also sounded an alarm about the possible supply shortage. The PwC report stated, “Demand for rare earth metals is currently expected to outstrip supply by 30,000–50,000 tons in 2012. This shortage is likely to result in a decline in production rate of devices and products such as mobile-phones, TVs, military equipment and wind turbines that require rare earth metal made components.”

In 2011, researchers at the University of Illinois used lithiated manganese to create an advanced prototype battery that can be recharged in just two minutes. This is an outstanding achievement given that recharging time is one of the major obstacles in the electric vehicle market.

Early last year, American Manganese Inc. expanded its research scope with British Columbia based Kemetco Research Inc. by including more high value products such as LMD, electrolytic manganese dioxide (EMD) and electrolytic manganese metal (EMM). Larry Reaugh, President and CEO of the company, said, “The company is positioned to take a leading role in providing products to the emerging rechargeable battery market. The manganese extraction process is well suited to produce any or all of the high value added manganese products including LMD.”

In a recent status report, Kemetco is reported to have successfully completed its pilot plant testing and is soon expected to begin production of EMD which will be used to produce lithiated manganese powder for the battery industry.

Earlier this month, General Motors signed a worldwide licensing agreement with Argonne National Labs to use the new advanced patented cathode material for lithium-ion batteries. The new material contains an oxide mix of lithium, manganese and cobalt. The unique feature of the material is that it can have a higher specific energy, which translates to lower cost per unit weight. The new material will be used in the next generation of Volt and make them less expensive.

Micky Bly, GM executive director – Electric Systems, Hybrids, Electric Vehicles and Batteries said, “Engineers and researchers at General Motors are working on next-generation battery systems that will reduce cost while providing improved performance, expanding the practicality and affordability of electric vehicles in the future.”

A report by IDTechEx estimates that 30 million electric vehicles were sold in 2011 and that number is expected to reach 50 million by 2021. The numbers forecast a golden period for the EMM market.

According to a report released by the CPM Group, a commodities research and consulting company, the global demand for EMM is expected to reach about 2.8 million tonnes by 2021 from the 1.5 million tonnes today. China controls 98% of the EMM market and its share of the demand is expected to increase from 87% to 89% over the next decade. And in the manganese market as a whole, the EMD segment for the battery industry is going to see the fastest growth.

The significance of graphene can be estimated from the fact that in 2010, Professors Andre Geim and Konstantin Novoselov of the University of Manchester were awarded the Nobel Prize in physics for their ‘groundbreaking experiments regarding the two-dimensional material graphene.’ Their work involved isolating graphene flakes using sticky tape.

Graphene is made from graphite, a mineral largely mined in China, India and Canada, with China producing 70–80% of the mineral. China has already taken steps to retain its graphite resources. In addition to restricting its export quota, China has imposed a 20% export duty and a 17% VAT making graphite prices rise. Depending on flake size, graphite flakes are now selling at $2,000–$3,000 per ton. High-purity, large graphite flakes are an integral part of lithium-ion batteries and in fact, these batteries have ten times more graphite than lithium. The demand for lithium-ion batteries is constantly rising with the rising evolution and demand for electric cars.

Graphite has not quite been the miracle mineral investors have been chasing about so far although its natural strength, stiffness, excellent heat and electricity conducting properties have been known features. However, the immense possibilities of graphene have piqued the interest of many. The demand and supply fundamentals of graphite are like those of rare earth metals. The British Geological Survey has listed both graphite and rare earth metals as those most likely to be in short supply globally.

A sheet of graphene is ultra-thin and is made up of one layer of carbon atoms bonded in a honeycomb pattern. So far, it is the thinnest and strongest known material. The potential applications of graphene include lighting panels and televisions that are wallpaper thin, mobile phones that can be folded away behind the ear, bendy electronic newspapers that could be folded into tiny squares, and a generation of even lighter aircraft. It could replace silicon in the manufacture of computer chips and bring new possibilities in medical advancements. The material could make solar panels more efficient and semiconductors faster. The potential of graphene in the manufacture of stealth military applications and electronic technology is probably still unimaginable. It is not for nothing that graphene is being increasingly referred to as the ‘miracle material.’

There are however, some chinks in this unbounded glory. It has been pointed out that making large sheets of graphene is not easy while IBM has mentioned that graphene replacing silicon in computer chips is not easy to ‘imagine’. Another practical problem is the high electricity conducting property of graphene. Devices such as transistors control the flow of electric currents but to manufacture these transistors, graphene would have to stop conducting electricity—so far a rather cumbersome problem. Certain analysts are of the opinion that commercial use of graphene would be feasible only after five years or so when prices are also likely to drop. The present problem is one of over capacity.

Late October recorded the sharpest fall (7.2%) in iron ore prices. Several Chinese steel making companies stopped buying iron ore and instead focused on depleting their stocks. Some shut down for maintenance during that period in an effort to tide over the phase. This was in sharp contrast to the steel market in May, when China produced a record 60.25 million tons of steel to meet the needs of its booming housing and infrastructure sectors.

Asia’s weak demand for steel also brought losses to two of Japan’s largest steel making companies—JFE Holdings Inc and Nippon Steel Corp. The losses in Japan were of course multiplied by the effects of the catastrophic earthquake and tsunami earlier in the year. South Korea meanwhile glutted the market with steel and that did not help the price fall at all.

The iron ore industries presently attracting the highest interest are those in the Pilbara region of Western Australia, the Gulf of Guinea, and India.

Rare Earths
Sliding rare earth prices are likely to stabilize in the near future given the various measures taken by China and several non-Chinese rare earth companies to remedy the situation. The slowing demand has been the primary cause for the declining prices over the latter part of 2011. During the January to September period, China exported 11,000 tons of rare earth metals, which is only 40% of the export quota.

Several large Chinese rare earth companies have reduced or stopped production completely for a short period in an effort to improve the price curve. The government is also considering making regulatory changes to stabilize the rare earth market. Rumors indicate that to push prices up, China might create a special value added tax invoice and also add an export duty on neodymium-praseodymium stritcast alloy (NdFeB).

Another factor triggering the declining demand and the consequent price fall is the fact that European, Japanese and American companies that use rare earth metals are exploring and developing alternate materials to free themselves from the strong hold that China has over the global rare earth market. Germany’s auto parts manufacturer Continental AG, Germany’s wind turbine manufacturer Enercon, and US based GE are a few examples.

Manganese
China’s lower demand for steel has affected the manganese market as well—prices of both manganese flake and silico-manganese have been low since September. The possibility of South Africa beginning production at several world class manganese deposits over the next two years has also kept prices low. China on the other hand, has been building its stockpiles of manganese.

In addition to the steel industry, manganese in various forms has found other markets to conquer. Lithium-manganese batteries are already used in automobiles such as the Nissan Leaf and the Chevy Volt. Nanotechnology has showed ways to dramatically improve the performance of manganese-based super conductors. Studies are underway at the Ames Laboratory to explore the possibility of using electrolytic manganese as a replacement for rare earth elements in magnets.

Magnesium
China’s production of primary magnesium increased by about 3% during the first nine months of 2011 and exports increased by almost 7%. The Netherlands, Japan and Canada are the biggest buyers of China’s magnesium and prices rose accordingly. However, prices are now sliding down because of lower global demand and lower prices being quoted by China’s suppliers.

Molybdenum
In June this year, analysts believed that the molybdenum market would have surplus supply this year. The positive outlook for steel meant a positive outlook for molybdenum also. However, October records show that the relation between the two is not so simple. In spite of steel and iron ore prices being stable in summer, molybdenum prices showed a decline. It is possible that China’s decision to no longer remain a net importer of molybdenum may have resulted in the strange divergence in steel and molybdenum prices.

A physical iron ore trader from Singapore remarked, “I don’t think real demand has increased in China. Most of the buying is done by traders who are stocking up on iron ore, wanting to take positions.”

In mid-December, Chinese steel mills boosted their stockpiles and that drove spot prices up by about 4%. An iron ore buying official from a small-sized steel mill said, “There should be another wave of restocking before the new lunar year, but it’s hard to say for sure as steel prices are still weak.”

India’s iron ore exports fell by 25% between the April to October period and chances are they will fall by 33% and reach 65–70 million tonnes by March 2012. China has been India’s largest iron ore importer for many years now, importing almost 50% of India’s production. The trend changed in July 2010 when the Indian state of Karnataka introduced a ban on shipments because of various domestic legal challenges. This has forced China to look for alternate sources to meet its domestic demand.

The United States has been observing rising numbers in the sale of cars, oil drilling equipment and farm gear and that has triggered an increase in both steel production and prices. Steel prices had declined in early 2011 but prices began rising in the later months and rose by almost 25% in the last 6–7 weeks.

However, like all other nations, steel producers are being cautious. Construction and a few other markets are still weak, profit margins are low and energy and raw material costs are still high—all of which do not paint a very positive picture. High production and increased imports could in fact cause a further dip in prices.

In an official statement, the concerned ministry said, “In order to protect international demand and maintain the basic stability of rare earth supplies, the total export quotas for 2012 and 2011 will be basically the same.” In 2011, China’s export quota limit was set at 30,184 tons but only 14,750 tons were actually shipped out until November.

Outside China and India, there are now over 350 rare earth mining projects that are being developed across 35 countries by about 200 companies. According to a recent report from Roskill, non-Chinese projects are expected to add 56,000–57,000 tonnes of rare earth oxide to global supplies by 2015. Such a development would reduce China’s share of the global market to 70%.

The state-owned China Securities Journal has estimated that China’s steel products consumption would reach 646 million tonnes in 2012, which would be about 6% higher than 2011 estimates. Steel production is estimated to increase by 5.8% and touch a very high 728 million tonnes. Steel demand from the construction sector is expected to reach 350 million tonnes, up about 4% from this year. The auto and machinery sectors are expected to consume 44 million tonnes and 128 million tonnes respectively in 2012. That would translate to a rise of 10% and 8.5% respectively.

The US steel sector has been continually challenged by low capacity utilization rates and rising raw material prices. Although it showed signs of recovery in 2011, the industry is unlikely to recover fully until 2013. According to Fitch reports, demand is growing in the heavy-equipment manufacturing sector, the auto sector and the energy sector. Demand from the construction is at record lows and is not expected to gain much momentum until 2015. Demand from the auto sector is expected to continue rising all through 2012. However, the constant fear of a downturn is making steel producers extremely cautious about building inventories.

The steel industry is also the largest consumer of molybdenum. Steel alloys that contain molybdenum are corrosion resistant and can hold much higher heat—both of which are critical in nuclear reactors. Steel alloys used to build nuclear reactors contain more than 7% of molybdenum, so each new reactor will use at least 400,000 pounds of molybdenum. Since the steel will be used to retrofit existing nuclear facilities as well, the prospects of molybdenum are quite positive over the next few years.

The last few months has seen an upward trend in magnesium prices with a large number of companies based outside China showing interest in the metal. This trend should continue even while some analysts indicate that using magnesium and certain other metals in place of steel in the auto industry may not be as energy efficient as believed. However, auto makers still prefer magnesium to build car parts because of its inherent light weight and durability.

On the other hand, China’s domination of the magnesium market and its tendency to restrict export quotas continue to raise concerns about the metal’s continuous supply over the next few years. Political friction between China and the rest of the world over the metals market is unlikely to surprise many market observers.

Magnetic rare earth metals are used in the electronics industry and global prices of these metals have fallen by almost 33% since August this year. Prices of light rare earths have fallen by almost 66% over the same period.

In a news report, Chief Executive and President Mark Smith of Molycorp was quoted to have said, “We all learned a hard lesson in July and August, how high these prices can go before customers begin yelling.”

Large corporations in Europe, Japan and the United States, that use rare earth metals in their manufacturing processes, are adopting different measures to manage their position better. They are lowering their inventories, moving to set up shop in China, lowering production or replacing rare earth metals with other metals. The consequent fall in demand for rare earths in non-Chinese markets brought on another fall in prices as speculators started selling.

To generate support for their projects, certain rare earth companies have begun highlighting the importance of heavy rare earth elements (HREE), which have a smaller market share but are more valuable. For example, HREE dysprosium is generally used together with the lighter neodymium in the powerful magnets critical for the functioning of wind turbines, electric motors, stabilizers of nuclear reactors and in hard disk drives. Price wise, dysprosium oxide (FOB) is selling at $2,000–2,020 per kilogram while neodymium oxide is selling at about $108 per kilogram. Similarly europium oxide, which is used in certain military applications, is selling at $3,780–3,800 per kilogram. Other valuable HREE are ytterbium, terbium and erbium selling at similarly high prices.

Last month we reported that China’s Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech had halted production to push prices upwards and Baotou’s move has been followed by other Chinese companies. China Minmetals and Ganzhou Rare Earth Mineral Industry Co. are two others although the latter has quoted maintenance reasons for ceasing production.

China has been actively trying to regulate its domestic rare earth industry and to clamp down on small and illegal producers. There have been moves by several companies to consolidate their businesses. Another move announced by the Chinese Ministry is to implement a system of invoices under which only companies with permits can operate in the market. Such a system might drive smaller businesses without permits to sell off their stockpiles and that would lead once again to declining prices. End users could stall their buying decisions and that could cause a further fall in prices. Of course what will actually happen would be obvious only after the invoicing system is implemented on a large scale. The industry opinion until then is that prices of rare earths will further fall. End users are likely to wait and watch.

Chief Executive Constantine Karayannopoulos of Neo Material Technologies said that because of the lower demand, Chinese exporters will be shipping only 20,000–25,000 tons of rare earths this year. Companies that have not utilized their full quota for this year will pay a price, as the Chinese Commerce Ministry has already lowered their quotas for next year. That would mean another supply shortage in the global rare earth market. According to Dudley Kingsnorth from rare earths consulting firm IMCOA, the non-Chinese demand for rare earths next year would be about 40,000 tons, a drop of 18,000 tons from his earlier forecast of 58,000 tons. Kingsworth also believes that in 2015, the figure would drop to 50,000 tons from his earlier forecast of 74,000 tons.

Günter Fella, head of purchasing in Continental automotive division said, “We are trying to reduce the effect of [rare earth] cost increases by optimizing our processes and using alternative materials. But it’s essential that the industry finds a commercially sensible arrangement involving the entire supply chain.”

Another company that has eliminated the need for neodymium-based magnets is Germany’s wind turbine manufacturer Enercon, which has started using an electrical system to generate the magnetic field required by its generators.

Last year, General Electric announced the development of a ‘super alloy’ that could replace rare earth metals. However, there is still a long way to go. Frank Johnson, a materials scientist with GE said, “We’re exploring several different hard and soft materials but haven’t selected a special chemistry yet.”

The trend to try and replace rare earth metals is not surprising considering the fact that the cost of neodymium has increased by 10 times over the last two years. The cost of the rare earth dysprosium, also used during the manufacture of magnets for electric vehicles, has gone up nearly 20 times in the last one year.

Meanwhile researchers at the DOE’s Ames Laboratory in Iowa are working on replacing rare earth elements in magnets with electrolytic manganese. Larry Reaugh, CEO of American Manganese Inc. said, “The rare earth squeeze has made companies go full bore looking for alternatives, and manganese has been found to be one of the more diversified metals out there as an alternative. Researchers are looking to manganese to replace rare earths in magnets, which may even be stronger.”

Ames Laboratory reported that such technologies “hold the potential to double the magnetic strength relative to current magnets while using raw materials that are inexpensive and abundant.” The success of such a technology bodes well both for the manganese market and the rare earth market.

According to analysts, the proposal to build a strategic rare earth reserve is likely to receive the green light soon now that China’s Inner Mongolia Baotou Steel Rare-Earth has announced a month-long halt in production. The supply shortage will drive demand and would in fact, give the US rare earth industry a much-needed push.

CEO Donald Ranta of Colorado based Rare Element Resources has a slightly different opinion. He believes that creating a stockpile now would only worsen the shortage outside China. He believes that the US should wait for a few years until Colorado’s Molycorp and Australia’s Lynas have become successful producers of rare earth metals.

Molycorp’s annual production capacity is expected to touch 40,000 metric tons by late 2013. The creation of a US stockpile would enable Molycorp to operate at full capacity and avoid fears of falling demand. Rare earth prices are likely to receive a boost as well.

In other parts of the world, the Planning Commission of India has announced a proposal to set up a nodal agency that would source rare earths and strategic metals and increase exploration activities. India’s proposal is also in response to China’s domination of the rare earth market.

China is soon expected to announce its 2012 production and export quota for rare earths and analysts are of the opinion that the numbers will either remain the same or go down further. Recent news reports have forecast that China’s export quota would be a maximum of 30,000 tons since 2011 supplies have not been completely consumed and demand is sluggish.

Rare earth prices have declined by about 27% from their highest values this year. Because of the falling prices, Molycorp CEO Mark Smith said that new rare earth mine developers are likely to face problems while funding new operations. He said, “The pricing environment today really is not going to help them utilize sales contracts as collateral for financing purposes.”

Zhang pointed out that if China decided to limit its EMM exports or its domestic demand increased, countries such as the US would be in deep trouble. China’s rare earth policies have shaken the global rare earth community and to avoid such a situation with EMM, Zhang said that it was time for the US to build a strategic reserve or initiate production.

Canada’s American Manganese Inc. is planning to do just that. The company is currently seeking funds to extract 99% pure manganese from a low grade abandoned mine in Arizona. Reports indicate that the mine has over 15 billion pounds of indicated reserves and over 3.5 billion pounds of inferred reserves. The company aims to begin production in 2014.

EMM is combined with nickel or lithium in batteries, is used as a colorant in bricks, and as an alloy in copper and aluminum alloys. One of the most promising uses of EMM is in the cathodes of lithium-ion batteries for electric vehicles (EV). Several large automotive manufacturers are already using the technology. It is critical for the US to have access to reliable and competitively priced manganese supplies.

The “high capacity manganese rich cathode” (HCMRC) battery has been jointly developed by the Argonne National Laboratory and Envia Systems and is expected to hold double the charge of currently available lithium-ion batteries, is half the weight of other EV storage batteries, and can be recharged in a matter of minutes.

In the manganese market, prices have been falling largely because of China’s large stockpiles. Over the next two years, South Africa will have several world class manganese deposits beginning production and that is another factor that will keep prices down. Johan Kriek, CEO of United Manganese of the Kalahari (UMK), said “While I still believe that manganese is a fantastic business, and that it will recover in time, I think that for the next two or three years, we’re in for a rough ride.”

However, steel production is expected to grow in China and since each tonne of crude steel uses about 30 kg of manganese ore, the demand for manganese will continue to grow. That fact alone could keep manganese prices from declining too sharply.