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Rare earths deja vu: Chinese crackdown = higher prices

Commodities / Rare Earths Jan 16, 2019 - 11:06 AM GMT

By: Richard_Mills

Commodities

In a scene awfully familiar to those who follow the rare earths market, China is once again threatening to hatchet production of the valuable minerals used in high-tech, renewable energy and military applications.

Last week it was reported that the Chinese government published new guidelines designed to eliminate illegal mining and encourage more high-end processing. Those sterile words are code for “less polluting”.

Shutting down illegal rare earth mines is nothing new to the Chinese, who have found that the process of extracting rare earth oxides from ore and refining them into useable products has come at a high price to the environment.


(For more about the poisoned lake and rare earth mining near Baotou, Inner Mongolia, read this excellent story by the BBC.)

Breaking Free from China. "Dependency on one country or source for rare earths is dangerous. Right now the situation is fairly dire in the industry because we are being held captive by the Chinese for these materials." BravoSolution's Paul Martyn

What is news, is the effect that limiting Chinese production will have on rare earth oxide prices; we only need take a look back to know this to be true.

China controls about 90% of the rare earth market so any export restrictions will be felt in countries that buy them, including the United States and Canada. The only REE mine in the United States, Molycorp’s Mountain Pass, went bankrupt in 2015 - although it is making a comeback, having been purchased by a US-led consortium.

In 2009 China launched a crackdown on illegal REE mining. At the time authorities said the unregulated industry was driving down global prices, making it impossible to cover the huge environmental clean-up costs.

The Chinese government imposed export controls on its rare earths, meaning a 40% drop in exports. Beijing said it had to implement quotas to protect the environment, but critics saw them as naked protectionism.

A year later, an international incident sent rare earth oxide prices into the stratosphere. In September 2010 a Japanese naval vessel interdicted a Chinese fishing boat near the Senkaku Islands, which Japan and China both claim ownership of, and detained the captain. The response hardly seems balanced in retrospect, but the Chinese decided to ban all rare earth exports to Japan, then an industrial powerhouse and China’s largest REE customer. The rare earths market panicked, and within months, all of the rare earth oxides gained in price.

While the spike in rare earths prices was good for miners like Molycorp and the numerous exploration companies that sprang up in search for them, buyers of products made from rare earths balked and pressured governments to do something about it. The US, European Union and Japan brought a case to the World Trade Organization to try and settle the dispute and get China to lift the restrictions.

In 2015 it did, resulting in a torrent of Chinese rare earth exports into the market and the inevitable collapse in prices.

While rare earth prices have never taken off to the extent they did between 2010 and 2015, intermittent crackdowns by China have seen price rises. We saw it happen in 2013 and in 2017.

Could this latest crackdown be China’s attempt to manipulate the REE market again? We can almost certainly bet on it. But we have another factor that could play into a rare earth revival, and that is a new high-tech arms race that is developing between the superpowers.

Donald Trump’s threat to withdraw from the 1987 INF Treaty with Russia may be the catalyst that starts a new arms race between the United States, Russia and China as each projects military power in defense of spheres of influence outside their borders.

If the US Military deploys missiles to places like Guam and Japan, it would deter China from a first strike against US ships and bases in the region, and also force Beijing into a costly arms race.

Not being party to the INF Treaty would also allow the United States to counter Russian aggression in Eastern Europe.

Why is this important? Because an arms race requires rare earths - something the US is in very short supply of. Not only that, the United States is wholly dependent on China for the mining and refining of rare earths it needs to expand and modernize its military.

China Is Beating the US in the Rare-Earths Game

 The need for a North American rare earths industry, complete with a “mine to magnet” (as in permanent magnets made from rare earths) supply chain, has never been more crucial - considering the aforementioned arms race and the continuing trade tensions between the US and China.

The first step is finding the elements, and that’s where exploration comes in. While the US has some deposits, for example in Alaska and Wyoming, none are yet mineable. Same with Canada.

At Ahead of the Herd, we are focused on finding early-stage companies with the potential for adding shareholder value in growing sectors like rare earth mining.

By Richard (Rick) Mills

www.aheadoftheherd.com

rick@aheadoftheherd.com

If you're interested in learning more about the junior resource and bio-med sectors please come and visit us at www.aheadoftheherd.com
Site membership is free. No credit card or personal information is asked for.

Richard is host of Aheadoftheherd.com and invests in the junior resource sector.

His articles have been published on over 400 websites, including: Wall Street Journal, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Pinnacledigest, Uranium Miner, Beforeitsnews, SeekingAlpha, MontrealGazette, Casey Research, 24hgold, Vancouver Sun, CBSnews, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, Financial Sense, Goldseek, Dallasnews, Vantagewire, Resourceclips and the Association of Mining Analysts.

Copyright © 2019 Richard (Rick) Mills - All Rights Reserved

Legal Notice / Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.


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