Japan & China Continue Their Rare Earth Dance

Added March 1st, 2012 by Anthony David

According to a late January Japanese news report, a Japan-China friendship association of Okinawa Prefecture signed an agreement with its Chinese counterpart at Huhhot in Inner Mongolia under which both parties agreed to cooperate in businesses involving rare earths. However, an official in charge of the Chinese People’s Association for Friendship with Foreign Countries in Inner Mongolia autonomous region has declared that all such reports are fraudulent and it signed no such agreement during the associations’ visit to Inner Mongolia. He said there was no mention of rare earths during the visit. The Japanese association has reportedly since then issued an apology for the reports.

While the two nations are exchanging sharp words over rare earths, the Japanese government has announced plans to spend $65 million in subsidies over the next few years to help Japanese companies reduce their use of dysprosium and neodymium while encouraging recycling and development of alternate materials. The two metals are used by Toyota Motor Corp in wind turbines and hybrid cars, by Apple Inc. in iPads, by Raytheon Co. in missiles and by Boeing Co. in helicopter blades.

Kenichi Hasehira, an official at the Japanese ministry’s nonferrous metals division said, “After two years, we expect demand for dysprosium to be cut by about 200 metric tons and demand for neodymium by about 1,000 tons a year from this program.” He also said, “All domestic makers of high-power magnets that use dysprosium have applied for the scheme.”

Most of these efforts have been in response to China’s tight grip on the global rare earth market. China’s rare earth export quotas and other restrictions have come under a lot of flak from the international audience in recent times with the EU, Mexico and the US filing complaints with the WTO that China’s pricing policies on raw materials, including magnesium and bauxite, violate international trade agreements. While China continues to maintain that its export restrictions are necessary to meet the nation’s domestic demand and to protect the environment, the WTO considers the argument illegitimate and has stated that China has been “unable to demonstrate” the benefits of its policies on the environment. Although the ruling does not include rare earth metals, analysts hope to see China change some of its rare earth policies as well.

Michael Silver, CEO of American Elements, said the ruling “confirms the existence of the two-tiered price structure that has caused so much concern.” He expressed his belief that the ruling would force China to change its restrictions. However, many analysts involved in the rare earth market are not so hopeful and feel that with China’s strong hold over 95% of the global rare earth market, they could easily ignore any future decisions of the WTO.

On the other hand, rare earth stocks displayed uncharacteristic positive pricing trends in January and February in spite of a weak demand marking the end of 2011. In fact the Market Vectors Rare Earth/Strategic Metals ETF recorded a high 18.6% rise in January.

Meanwhile on February 2, Lynas Corp received approval for its advanced materials plant (LAMP) at Gebang in Malaysia. The facility, along with others expected to come onstream over the next few years, may bring about a ten-fold increase in non-Chinese rare earth output between now and 2016. Initial annual capacity of the Lynas plant is expected to be 11,000 tonnes of rare earth oxide (REO) and that is eventually expected to ramp up to 22,000 tonnes per year.

Other experts predict that non-Chinese REO production could reach 60,000 tonnes per year by 2016 while demand could be at 55,000 tonnes per year. Such a surplus could once again bring down prices and rock the boats of the hundreds of rare earth companies operating in the market.

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