U.S. and Canadian producers of heavy rare earth metals are poised to benefit as China becomes a net importer of some of the materials as early as 2014, said Peter Cashin, chief executive officer of Quest Rare Minerals Ltd. (QRM)
“They’ll be a very important consumer for our products,” Cashin said in an interview. “They are an unanticipated consumer; most of the assumptions have been for non-Chinese consumers. The Chinese would be a huge market for us.”
China is the world’s biggest producer of rare earths, 17 chemically similar metallic elements used in the defense, renewable-energy and electronics industries by companies such as Apple Inc. (AAPL:US), Toyota Motor Corp. (7203) and Boeing Co. (BA:US) As China develops its high-tech industries, the Asian country is expected to become an importer of some rare earths by 2014, a year earlier than it forecast early last year.
While China produces 95 percent of the world’s rare earth elements -- up from 27 percent in 1990 -- it’s a growing consumer of the materials due to the emergence of clean-energy and defense-related technologies, according to the U.S. Geological Survey. China held about half of the world’s reserves of rare earths last year, with 55 million metric tons, compared with 19 million tons in Russia and 13 million tons in the U.S.
“China’s consumption of REEs has only recently begun to increase,” the USGS said in March 2011. “Since 2000, China’s consumption of REEs has nearly quadrupled, from 19,000 metric tons in 2000 to 73,000 metric tons in 2009. China’s primary use for REEs is in the magnet industry, which accounted for 30 percent of total Chinese rare earth usage in 2009.”
Rare-earth prices soared in 2010 after China set production caps and quotas on exports of rare earths, tungsten and molybdenum to conserve natural resources and protect the environment. The restrictions prompted the U.S., the European Union and Japan to complain at the World Trade Organization that China is violating global commerce rules.
Regardless of the WTO ruling, which may not come until early 2013, Montreal-based Quest stands to gain from China’s growing need for so-called heavy rare earths, Cashin said in the July 12 telephone interview. The company, which says it’s developing the largest and highest-grade deposit of heavy rare earths in North America, predicts a supply shortage as Chinese demand grows. Cashin is targeting 2017 as the startup date for production at Quest’s Strange Lake project in Quebec.
Heavy rare earths are the less abundant members of the group of elements, such as dysprosium, used in wind turbines, and erbium, used in lasers. Heavy rare earths, used in mobile phones, magnets, hybrid batteries and hard-drives, make products more heat-tolerant and, therefore, more efficient.
“In the next one to five years, light rare earths will go from deficit to supply balance to oversupply,” Cashin said. “The deficit situation for heavies will continue until 2025, so prices will be maintained through then, anyway.”
Light rare earths surged 600 percent to 700 percent on average in 2010, according to Mackie Research Capital Corp. They gave up those gains the following year, Cashin said.
Mining stocks have dropped 34 percent in the past year, according to the Bloomberg World Mining Index (BWMING), as concern over the slowing global economy curbed demand for raw materials. Average prices of rare earths have fallen more than half from record levels in 2011 as consumers reduced purchases or sought alternative materials.
The global economic crisis is “causing a bit of a depression on demand, but given that we have to look at a much longer time window, most of the correction will be worked out of supply and demand,” Cashin said, adding that Quest projects annual growth of 6 percent to 7 percent for all rare earths until 2020, down from 9 percent before the slowdown.
Much of that demand will come from China, which has begun to build rare-earth stockpiles for the first time to stabilize prices, according to China Securities Journal.
“We are in fairly advanced discussions with possible strategic partners, but we haven’t addressed the potential for Chinese consumption,” said Cashin, who will travel to Beijing in November to speak with Chinese companies including carmakers.
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