Rising demand for a number of critical rare earth-containing products—like those used in the electronics, defense, automotive and alternative energy sectors—and actions by China, which controls more than 95 percent of global production, to influence supply, likely will keep the international rare earths market on a highly volatile path for some time.
“Everyone is trying to get a jump ahead to see what the Chinese are doing,” said Karl Gschneidner Jr., senior metallurgist at the U.S. Energy Department’s Ames Laboratory and a distinguished professor at Iowa State University’s Materials Science and Engineering Department in Ames, Iowa.
Over the past few years the Chinese government has imposed export quotas and tariffs on rare earth alloys, metals and oxides to ensure an internal supply amid a rapid growth in the country’s economy, he said.
The Chinese also have the lion’s share of rare earths processing capacity, with most of the processing facilities elsewhere closing their doors several years ago when rare earth prices plummeted. The only other country to provide conversion services is Japan, with only a marginal amount done in the United States, although some capacity could be added in the next 12 to 18 months, according to Steve Constantinides, director of technology at Arnold Magnetic Technologies Corp. in Rochester, N.Y.
However, that new capacity is expected to be exclusively for light rare earths and there currently is no separation capacity for heavy rare earth elements outside of China due to the complex chemistry of the process, according to Gareth Hatch, founding principal of consultancy Technology Metals Research LLC, Carpentersville, Ill., and president of Innovation Metals Corp., which began providing downstream processing and marketing services to the rare earths sector in 2011 with a light and medium rare earth elements processing facility in Vietnam.
At the same time, demand for certain rare earths, such as neodymium—used for the popular neodymium-iron-boron permanent magnets utilized for motors in disk drives and wind turbine gear boxes, in hybrid-drive and electric-drive automobiles and electric bikes—increased very rapidly as countries emerged from the global economic recession, Constantinides said.
Wind turbines, which use about 600 kilograms of neodymium per megawatt of electric output, according to Constantinides, have seen big gains in the past year or two in China, although growth has been more muted in the United States, where the availability of financing and uncertainty about tax credits has kept construction volumes down.
“The Chinese are eating everyone’s lunch,” seeking to dominate not just the wind turbine sector but also that for solar panels, for both domestic and export purposes, said Christopher Ecclestone, principal and mining strategist at Hallgarten & Co. LLC, New York.
The rise of the hybrid- and electric-drive auto industry has been a big driver for lanthanum, he said, as well as rare earths used in magnets: dysprosium, neodymium and praseodymium. With the current sustained high oil prices, the only two factors that could dampen the growth of hybrid and electric cars, and therefore the rare earth magnets they contain, would be a slowing of global economic growth. This would bring with it weak household earnings that would impact consumer discretionary spending and/or potential shortages in supply of rare earths, which would affect prices of those elements as well as the adoption of such new technologies as lanthanum-nickel hydride batteries.
Electric bicycles, another strong global growth market, also consume a substantial amount of neodymium magnets: between 60 and 350 grams per bike. Constantinides said that electric bike production is expected to reach 35 million units by 2015, with an increasing percent of higher-performing bikes that contain rare earth magnets, vs. 20 million units in 2009.
Rare earths also are seeing increased use in catalysts for the petrochemical and auto markets, as well as for metallurgical applications, glass polishing and ceramics; and rare earth phosphors usage in gaining in computer monitors, cellular telephones, global positioning system (GPS) devices, lighting, radar, televisions and X-ray intensifying film.
The end result of this increased demand, compounded by a global scarcity of the metals and supply constraints, is that prices “went crazy” last year, Daniel J. Cordier, rare earths mineral commodity specialist at the U.S. Geological Survey, said. The degree of the increase varies by element, but on the high side prices for such rare earths as cerium oxide and lanthanum oxide logged an astounding 1,500-percent rise last year vs. 2010 before peaking last summer and gradually falling back since then. Others, such as samarium, have seen more modest—but still significant—price increases.
The recent moderation in prices has been attributed largely to the fact that the Chinese government, given strong political pressure, has eased some of its quotas, especially for light rare earths. However, there is a lot of apprehension about the future. “China could change their policies again tomorrow,” Constantinides said.
“There is growing recognition that China is an unreliable trading partner,” Rep. Mike Coffman (R., Colo.), a member of the House of Representatives Natural Resources Committee and chairman of the House Rare Earths Caucus. He believes China’s rare earths export constraints constitute a violation of international trade policy, and the caucus has asked the U.S. Trade Representative to file a complaint with the World Trade Organization.
Coffman said the caucus is looking at the whole rare earths supply chain, working with the U.S. Defense Department to encourage the expansion of rare earths mining capacity as well as processing and recycling capabilities, given that rare earths are critical to the United States’ (and other countries’) national security and economic welfare. In fact, the Energy Department’s recent draft Critical Materials Strategy report named five rare earths—dysprosium, europium, neodymium, terbium and yttrium—as the most critical materials to national security and to the production of clean energy.
The supply constraints have led some manufacturers to re-engineer products to use less rare earths or to incorporate those that are less expensive and more readily available. But that isn’t always possible, Hatch said, noting that most alternative materials for catalysts are more expensive than rare earths. Likewise, with flat panel displays for computer monitors, cell phones, GPS devices, etc., such rare earths as europium, terbium and other phosphors can’t be substituted because they provide specific colors for display screens or monitors.
Hopes are high that some of the tightness in the rare earths market will be alleviated later this year when Greenwood Village, Colo.-based Molycorp Inc. and Australia’s Lynas Corp. bring new mining and processing capacity online. However, this capacity will be largely for light rare earths.
A number of other mines likely will be coming on-stream in the longer term. Hatch said that TMR has identified 406 new rare earths exploration projects, of which about three dozen have a defined mineral resource. Nevertheless, very few of these will be for heavy rare earths.
As a result, while rare earth prices are expected to moderate—possibly falling another 20 percent from current levels, according to Constantinides—supply could remain tight and prices could continue to be volatile.
“This year is a year of transition,” Ecclestone said.