INDEPENDENT VIEWPOINT

REE Market shakeout and the 5 rare earths that matter

The rare earth market is made up of 4 or 5 distinct, critical rare earths that should be the focus for investors at the moment, says Jack Lifton. A Critical Metals Report interview.

PETALUMA C.A. (The Critical Metals Report ) - 

The Critical Metals Report: Can you give us an overview of the rare earth element (REE) market today? What are the most important trends you're following?

Jack Lifton: The REE market today is going through a shakeout. We had a bubble last year-an anomalous speculative blip-that ran REE prices to the sky. It happened just as the junior miners were coming into full bloom. At that time, I would say most of the junior REE exploration companies were overvaluing their projects something fierce. Then the market herd jumped in and ran the prices way up.

Now that the speculative bubble has burst-and I think a lot of it had to do with China repositioning itself-we're back to earth. I would guess that of the 250-260 listed REE public companies, there's just one that is in production. All of the valuations are coming down to earth.

Between 90-95% of the remaining junior miners will be wiped out. Investors should understand there is no single REE market. There is a market for some of the individual REEs-the critical REEs. But for at least half of the REEs, production and usage are tiny and there is no "market" to speak of.

For many REEs, production exceeds demand and will for the foreseeable future. Cerium is a good example of the fact that not all rare earth demand is equivalent. When you produce dysprosium, you are always producing much more cerium than dysprosium. That doesn't mean that there is a market for cerium. In fact, it is more correct to say that some cerium/lanthanum/neodymium deposits contain recoverable dysprosium. Saying it this way really defines the problem.

I follow four or five critical REEs that each have individual markets. One of them is neodymium, because it's the most important REE used in permanent magnets. The others are heavy rare earth elements (HREEs), including europium, terbium, dysprosium and yttrium. The latter isn't really an REE, but it's associated with them. As the market corrects to reasonable prices, people are coming to understand this.

The critical REEs will maintain strong demand and associated pricing. I disagree with people who think all REE prices will collapse, because I see no significant production of REEs outside of China. Today, there's hardly any difference in the ratios of production inside and outside China compared to four years ago. I'm waiting for a producer to come on-line and make a significant difference.

Annual growth projections in the REE permanent magnet market has been about 8-9%. Worldwide production of neodymium is approximately 21-25 Kt/a. Ninety percent is from China. If demand increases at 8% per year for three years, that's about a 30% increase, approximately 7.5 Kt of production. Demand growth will be about the same as new mine supply and that will maintain the price of neodymium.

TCMR: What other critical rare earths are you watching?

JL: The big issue in magnets is the HREE dysprosium. There is not now, nor has there ever been, any production of dysprosium from outside of China. There are several possible significant dysprosium sources coming on-line in the next two to four years from hard-rock sources outside of China.

None of the mines are at any stage where we can predict when they will be commercially producing. Two to four years out would be the earliest any new dysprosium production could occur outside of China. Dysprosium is already in short supply. The total world production of dysprosium in the last 12 months is unlikely to have exceeded 1.4 Kt. The market will be in deficit if dysprosium usage increases due to production of REE permanent magnets. The dysprosium market is in balance at 1.4 Kt. With 8% growth in demand each year, we're going to need about 100 tons (t) a year of additional dysprosium.

I don't see that happening easily. Only four or five new HREE producers could be in production in the next three or four years.

Dysprosium is going be in short supply for some time and will, therefore, maintain its price. Everybody talks about how the price dropped from $2,500-1,200/kilogram (kg) of 99.9% metal. That is comical, because the peak people are using is the speculative bubble last year. The current price of dysprosium is significantly higher than the real long-term baseline. I believe it's going to maintain its price of approximately $1,200/kg for 99.9% metal in China.

Dysprosium is the problem metal for everyone, because no hard-rock source has ever been put into production.

There's also significant dysprosium in Australia, but projects there are quite early. No matter what we do right now, we're going to be short of dysprosium for at least the rest of this decade, if not permanently. If dysprosium supply limitations are not addressed, growth in the use of REE permanent magnet devices for rapid heating and cooling environments will be affected.

TCMR: What other new technologies are increasing REE demand?

JL: In addition to magnets, phosphors in color displays use REEs-in this case europium, terbium and yttrium. The U.S. has a little bit of europium.

Terbium and europium come mainly from China. However, all of the dysprosium hard-rock deposits show significant terbium. World terbium production is only a couple hundred tons. So, 20 t is a significant increase. Compact fluorescent lamps use terbium in the phosphors. It's so important to the lighting makers in Europe

TCMR: You mentioned how the market reacted quickly to REE prices going straight up in bubble fashion and then coming right back down. The government moves a lot slower. Is there government support for development of domestic sources of REEs in the U.S.?

JL: The U.S. government seems to ignore industrial needs.

The latest government REE news is that the Department of Energy has just started a program to find domestic alternatives to REEs and reduce REE demand. It is a $120 million program. I had the misfortune to read this document. It's incredible how people think innovation and success can be legislated. Thomas Edison need not apply.

TCMR:  Are you still watching production in Nebraska?

JL: Yes. The United States imports twice as many distinct materials as it did 20 years ago. I think the U.S. was self-sufficient in something like 25 elements 25 years ago, and now it's much less because the country shifted to outsourcing raw material production.

For example, we stopped producing manganese domestically because our ore isn't as rich as ore from West Africa. We have a lot of ore, but it is lower grade. As a country, we are rethinking whether outsourcing raw material production is a good idea. Another example is niobium; it would be a very good idea to have a domestic niobium source like the one in Nebraska. A niobium deposit is often associated with REEs. Having the two together in one deposit lowers the overall cost. It doesn't matter what mineral or metal you're talking about, the low-cost producer with the lowest breakeven will be the winner, even at the lowest point in the economic cycle.

Another factor is availability. We saw what happened when China squeezed availability. The whole REE industry is suddenly running around like Chicken Little. The sky is falling. That's why we need somebody in Nebraska producing niobium.

TCMR: In retrospect, was it China squeezing availability, or was it speculative, free market price behavior?

JL: I'm talking over the last five years. Last year was speculative. Over the long-term, when China coughed, we caught a cold, because we had moved all of our production overseas. Everything is unintended consequences-except that they're very foreseeable.

I remember when this was happening. I said, "What are we going to do if China's demand exceeds its domestic supply, or the Chinese decide they don't want to do this anymore?" I was told that it would never happen. Well, it just seems to have happened. We need domestic supplies-of everything.

TCMR: Is that the message you are trying to deliver about REE supply and demand?

JL: We need to keep government out of this, and we need private equity to finance it. If people stop worrying about tomorrow's returns, and start looking at strategic investments, we'd all be a lot better off. Government's not capable of doing that. It is just not smart enough. Private equity can do it because there is profit involved. But as long as we are thinking short-term, our problems will persist.

Strategic planning, along the lines of what the Chinese are doing, is the winning method of moving an economy forward.

TCMR: Thank you so much for your time, we look forward to speaking with you again.

Jack Lifton has more than 50 years of experience in the global OEM automotive, heavy equipment, electrical, electronic, mining, smelting and refining industries. His background includes sourcing, manufacturing and sales of platinum group metal products, rare earth compounds and ceramic specialties used to make catalytic converters, oxygen sensors, batteries and fuel cells. Lifton is knowledgeable in locating and analyzing new and recycled supplies of "minor metals," including tellurium, selenium, indium, gallium, silicon, germanium, molybdenum, tungsten, manganese, chromium and the rare earth metals. He is a senior fellow of the Institute for the Analysis of Global Security.

Story courtesy of the Critical Metals Report