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The rare earths industry is at a turning point, new sources of supply from mines outside China are coming on stream, the industry in China is coming under more effective control with increased corporate consolidation led by state controlled enterprises, and a re-evaluation of the way in which rare earths are used is taking place, following a year of unprecedented high price
In 2011, China is estimated to account for 94 per cent of world supply, with most of the remainder coming from Russia and the USA. By 2015, the rest of the world will account for just over a quarter of world supply and this proportion is likely to increase further over the five years to 2020.
Since 2006, Chinese government controls on output, such as mining licences and quotas, have become more effective. In 2011, further controls were introduced and all companies mining rare earths will now be required to show that they have mandatory production plans, appropriate planning permission, environmental certification and safety licences. In addition, companies exceeding the production quota can have their licence to operate revoked. In 2011, the Chinese government also introduced tighter controls on emissions from processing plants, which came into force on 1st October.
In order to ensure that measures to control output and reduce emissions are realised, a process of consolidation of control of production has taken place since 2007. Baotou Rare Earth controls the flow of concentrates from the Baiyun Obo mine in Inner Mongolia and will control most of the cracking and separation capacity by the end of 2011. In the south of China, the location of key heavy rare earth deposits, a number of companies have been involved in the consolidation process including China Minmetals, Chinalco, and Guangdong Rising Nonferrous Metals.
The structure of the rare earth industry is changing, not only in terms of the development of resources outside China, but also in the determination of companies both inside and outside China to become fully integrated into downstream products such as magnets and phosphors. There will continue to be a role for merchant producers supplying separated oxides, but it will be less prominent than in the past.
Chinese demand key to growth over last five years
Global demand for rare earths grew at 5 per cent between 2005 and 2010, although the market shrank in 2009, in line with the global economic downturn, which had a marked negative impact on demand in the rest of the world. Growth in demand in China was much higher, running at 11 per cent and the country now accounts for 70 per cent of world demand. Estimated total demand in 2010 was 125,000t REO.
Consumption of rare earths in the rest of the world declined by nearly 4 per cent between 2005 and 2010. The decline was partly due to the impact of the recession but also reflected the increasing volume of downstream processing within China and the tightening export quota.
Magnets account for increasing proportion of market
In terms of volume, magnets accounted for around 27 per cent of total demand in 2010, compared with just 13 per cent in 2000. It is also by far the most valuable sector, accounting for around 47 per cent of the total gross value in 2010. High rates of growth over the last 20 years have been driven by increased demand for hard disc drives, personal audio equipment and small electric motors in some cars. Some of the predicted growth for magnets to 2015 will come from the use of permanent magnet motors in wind turbines and HEVs.
Metallurgical applications, which include the use of rare earths in nickel metal hydride (NiMH) batteries as well as their use as an additive in steel and magnesium, accounted for around 19 per cent of global demand in 2010. NiMH batteries have shown the highest rates of growth in this sector over the last decade, initially driven by demand from portable electronic equipment and then from the use of these batteries in HEV power systems.
LREEs are used in the manufacture of fluid catalytic cracking catalysts (FCCs) and autocatalysts, which together account for around 16 per cent of global demand. FCCs are the main application for lower value LREEs and this sector has seen significant changes in 2011, as Chinese export prices soared. Manufacturers responded by developing alternative formulations using reduced, or even zero, levels of rare earths.
The development of flat screen displays has had an adverse impact on the use of cerium oxide as a glass additive and in polishing powders. However, burgeoning demand for flat screens in smart phones and tablets has partially offset the reduced unit consumption of polishing powder per screen. Slurry efficiency has been improved in the polishing process and recycling used where appropriate, with a concomitant fall in the consumption of cerium oxide.
Phosphors and pigments account for just over 6 per cent of the total volume of the rare earths used, but nearly 15 per cent by value. Phosphors are the main market for europium and terbium, both high value HREEs, as well as yttrium. The main factor driving growth to 2015 will be the spread of legislation designed to phase out incandescent bulbs, resulting in their replacement by compact fluorescent lamps, all of which require the use of rare earth phosphors.
In the decade to May 2010, price fluctuations for rare earth oxides were nearly all contained within a band of ± 300 per cent, but from June 2010, prices began to soar. Prices for lower cost LREEs were particularly affected by the clampdown on Chinese export quota in mid-2010. Between May 2010 and August 2011 the fob China price for cerium oxide increased by nearly 3,000 per cent and that for lanthanum oxide by 2,300 per cent.
Chinese internal prices for neodymium oxide increased eightfold between May 2010 and August 2011, reflecting a shortage of REEs for magnets within China. The high prices prevailing in this period resulted in a concentrated effort to find alternatives to NdFeB magnets in high intensity applications, such as permanent magnet motors for wind turbines and hybrid electric vehicles (HEVs), both within China and in the ROW.
At the start of Q4 2011, there were downward corrections to the prices for all rare earth oxides. Buyers had reacted to rising export prices by staying away from the market and Chinese exports tumbled through the first nine months of the year.
Industries in the rest of the world have responded to high prices by reformulating their product (FCC catalysts), reducing unit consumption (polishing powders), seeking alternative technologies (induction motors instead of permanent magnet motors) and researching opportunities for recycling the rare earth content of batteries, magnets and lamps.
Chinese supply is forecast to increase by around 8 per cent between 2011 and 2015 to 145,000t REO, but this increase in output will mainly serve to supply the growing demand for rare earths in China’s manufacturing industry. Export quotas are unlikely to be eased over the next four years, so supply to meet growth in demand in the rest of the world will have to come from outside China. Supply from mines outside China will increase by 70 per cent to 2015. These new projects are rich in light rare earths, including neodymium, but will contribute relatively little to the global supply of HREEs.
Overall demand for rare earths is forecast to grow at 7-9 per cent to 2015. Predicted growth rates might have been stronger but for the fall in global GDP from 3.9 per cent in 2010 to an expected 3.1 per cent in 2011 and the impact of high prices on some applications in 2010/2011. Growth in the demand for neodymium and dysprosium in the manufacture of magnets will continue to be strong and could result in a supply deficit in 2015. Questions about the availability of REEs for magnets, and any prolonged period of high prices could limit the use of NdFeB magnets in permanent magnet motors in HEVs, EVs and wind turbines
Rare Earths and Yttrium: Market outlook to 2015, 14th edition is available at www.roskill.com/rare-earths