Companies Seek to Reduce Dependence on Chinese Rare Earth Elements
2013 has been an important year for the development of rare earth elements in China and abroad. In order to strengthen the rare earth element supply chains within China, the Chinese government continues its policies to consolidate companies and tighten export restrictions in the rare earth element industry; this has led to foreign companies ramping-up efforts to find alternative solutions that will help alleviate their dependency on the monopolistic Chinese rare earth elements supply. While it appears that the supply of light rare earth elements will be self-sufficient, there is greater concern over the supply of the heavy rare earth elements, which is often scarce and complicated to extract. A brief look at the rare earth element applications, reserves, production, deposit types and distributions shows that the success of China’s policy over this material largely depends on success in both rare earth element exploration projects and its heavy rare earth element recycling methods.
Definition of Rare Earth Elements
Rare earth elements (REEs), or rare earth metals are a set of 17 chemical elements in the periodic table, specifically the 15 called lanthanides plus scandium and yttrium. Scandium and yttrium are considered as rare earth elements given they have very similar characteristics to the lanthanides. The lanthanides can be segmented into two groups: light rare earth elements (LREEs) – lanthanum through europium – and heavy rare earth elements (HREEs) – gadolinium through lutetium. Yttrium is typically classified as a heavy element.
Applications of Rare Earth Elements
REEs are important inputs in the production of many goods and are key components in the primary and secondary sectors, while consumers have no direct need for REEs themselves. However the demand for REEs is contingent on the demand for the final products; therefore an increase in the demand for the final product will lead to an increase in demand for REEs.
REEs have a broad range of applications; some of the major end uses include permanent magnets, automotive catalytic converters, fluid cracking catalysts in petroleum refining, phosphorus in color television and flat panel displays, rechargeable batteries for hybrid and electric vehicles, wind turbine generators and numerous medical devices. These elements also play an important role in defense industry applications, where they are used in vital components such as fighter jet engines, missile guidance systems, antimissile defense systems, space-based satellites and communication systems. The various applications of REEs are summarized in Figure I.
Figure I: Worldwide Consumption of Rare Earth Elements (2010)
Source: Cormark Securities Inc., Technology Metals Research, LLC. (2011) and IMCOA.
Rare Earth Reserves and Production
Although REE reserves are dispersed throughout the world, most of the REE production occurs in China. However due to China’s expected persistence of restrictions on exports of REEs through quotas and export tariffs, finding access to a reliable and sufficient supply of REEs to meet their current and projected demand has been an increasing issue of concern for many foreign companies.
It is estimated the world has approximately 110 million metric tons of rare earth reserves, with China accounting for the largest concentrations, followed by Russia and the United States (see Figure II). These three countries make up roughly 50% (55 million), 17% (19 million) and 12% (13 million) of the world’s total reserve respectively. It is interesting to note that China currently accounts for over 95% of the world's rare earth supply as illustrated in Figure III. Countries, such as the United States, were once self-reliant on domestically produced REEs, but over the past few years they have become 100% reliant on imports as China’s supply of REEs were noticeably cheaper than those supplied by other countries.
Figure II: Rare Earth Reserves Worldwide by Country ('000 metric tons) (2012)
Source: U.S. Geological Survey.
Figure III: Worldwide Rare Earth Element Production, 2008 to 2012 (in metric tons)
Source: U.S. Geological Survey.
Many countries have expressed a sense of urgency to seek and secure alternative non-Chinese suppliers of REEs as a result of their own increased demands and the tightening export restrictions on REEs in China. The search for alternative sources continues in Australia, Brazil, Canada, South Africa, Tanzania, Greenland, and the United States, but a reliable source is still yet to be found. Although there are some known deposits in countries outside of China that could be potentially economical to mine, but for it can take up to 10 or more years to bring them into production and generate a sufficient supply to meet international needs. According to Technology Metals Research, there are 165 companies with 251 projects in 24 countries, however most of these companies are relatively small and even if a credible source has been found, it would be hard to replicate the scale of which can be seen in China. Some of the major REE production projects outside of China that are expected to begin generating supply in the near future are listed below (Figure IV).
Figure IV: Selected Rare Earth Mines outside China
Source: BGR; Canadian Imperial Bank of Commerce; Roland Berger, Rare Earth Investing News.
|Company ||Project Name ||Planned Production Date* ||Total reserves of REO |
|Production capacity |
|Molycorp Minerals ||Mountain Pass ||2013 ||2,072 ||42|
|Lynas Corp. ||Mount Weld ||2013 ||1,454 ||22|
|Great Western Minerals Group ||Steenkampskraal ||2013 ||29 ||5|
|Arafura ||Nolans Bore ||2014 ||1,169 ||20|
|Alkane Resources ||Dubbo ||2014 ||651 ||2.6|
|Montero Mining and Exploration ||Wigu Hill ||2014 ||85 ||5|
|Greenland Minerals ||Kvanefjeld ||2015 ||6,555 ||44|
|Quest Rare Minerals ||Strange Lake ||2015 ||2,100 ||12|
|Rare Element Resources ||Bear Lodge ||2015 ||831 ||11|
* These mines are expected to begin production by the given year.
REE Deposit Types and Distributions
Countries outside of China have a rich variety of REE deposits, including carbonatite, alkaline rocks, iron-REE deposits and more. These deposits are typically somewhat enriched with LREEs, but have a lack of HREEs.
REE mineral deposits occur in a broad range of igneous, sedimentary and metamorphic rocks. The principal concentrations of REEs are associated with carbonatites and alkaline igneous rocks. The table below (Figure V) offers a brief outline of the major REE deposit types and the number of documented occurrences.
Figure V: Major REE Deposit Types and Examples
Source: Rare Earth Elements, British Geological Survey.
|Deposit Type ||Number of Documented Occurrences ||Major Examples|
|Carbonatite-associated ||107 ||Mountain Pass, USA; Bayan Obo, China; Okorusu, Namibia; Amba Dongar, India; Barra do Itapirapua, Brazil; Iron Hill, USA|
|Associated with alkaline igneous rocks ||122 ||Ilimaussaq, Greenland; Khibina and Lovozero, Russia; Thor Lake and Strange Lake, Canada; Weishan, China; Brockman, Australia; Pajarito Mountain, USA|
|Iron-REE deposits ||4 ||Olympic Dam, Australia; Pea Ridge, USA|
|Hydrothermal deposits ||63 ||Karonge, Burundi; Naboomspruit and Steenkampskraal, South Africa; Lemhi Pass and Snowbird and bear Lodge, USA; Hoidas Lake, Canada|
|Marine placers ||264 ||Eneabba, Jangardup, Capel, WIM 150, Australia; Green Cove Springs, USA; Richards Bay, South Africa; Chavara, India|
|Alluvial placers ||78 ||Perak, Malaysia; Chavara, India; Carolina monazite belt and Horse Creek, USA; Guangdong, China|
|Paleoplacers ||13 ||Elliot Lake, Canada; Bald Mountain, USA|
|Lateritic deposits ||42 ||Mount Weld, Australia; Araxa, Brazil; Kangankunde, Malawi|
|Ion-adsorption clays ||>100 ||Longnan, Xunwu, China|
Figure VI shows the distribution of REEs in selected deposits and the share of estimated global production in 2015. Deposit sites usually contain all types of REE, but the only difference is the degree to how much of each type of REE is present, and this is clearly demonstrated by the difference in quantity of LREEs and HREEs exhibited at each of the deposits. Apart from Strange Lake in Canada, almost all the other deposits have a severely limited supply of HREE, and in some deposits, it is virtually nonexistent.
Figure VI: Distribution of REEs in Selected Deposits
Source: Rare Earth Elements, British Geological Survey.
|Rare Earth Group ||Rare Earth Element ||Mountain Pass, USA ||Bear Lodge, USA ||Strange Lake, Canada ||Mount Weld, Aus. ||Bayan Obo, China ||Average Upper Crustal Abundance (PPM) ||Est. World Supply in 2015|
|Light Rare Earth Elements (LREE) ||Lanthanum ||33.8 ||30.4 ||4.6 ||24.0 ||23 ||19.3 ||27|
|Cerium ||49.6 ||45.5 ||12 ||51.0 ||50 ||39.2 ||40|
|Praseodynium ||4.1 ||4.7 ||1.4 ||4.0 ||6.2 ||3.8 ||5|
|Neodymium ||11.2 ||15.8 ||4.3 ||15.0 ||18.5 ||15.5 ||16|
|Samarium ||0.9 ||1.8 ||2.1 ||1.8 ||0.8 ||2.8 ||2|
|Heavy Rare Earth Elements (HREE) ||Europium ||0.1 ||0.4 ||0.2 ||0.4 ||0.2 ||0.6 ||0.4|
|Gadolinium ||0.2 ||0.7 ||2.5 ||1.0 ||0.7 ||1.7 ||2|
|Terbium ||0.0 ||0.1 ||0.3 ||0.1 ||0.1 ||0.3 ||0.2|
|Dysprosium ||0.0 ||0.2 ||8.2 ||0.2 ||0.1 ||1.7 ||0.9|
|Holmium ||0.0 ||0 ||1.7 ||0.1 ||Unknown ||0.4 ||0|
|Erbium ||0.0 ||0 ||4.9 ||0.2 ||Unknown ||1.3 ||0.4|
|Thulium ||0.0 ||<0.01 ||0.7 ||Unknown ||Unknown ||0.2 ||0|
|Ytterbium ||0.0 ||0.5 ||4 ||0.1 ||Unknown ||0.9 ||0|
|Lutetium ||Unknown ||<0.01 ||0.4 ||Unknown ||Unknown ||0.2 ||0|
|Yttrium ||0.1 ||<0.01 ||52.8 ||Unknown ||Unknown ||12.3 ||5|
The Reasons for China’s Actions
In an effort to assert direct control over the supply and price of rare earth elements, the Chinese central government has been consolidating the rare earth industry into major mining groups and implementing stringent export quotas. By controlling the output of REEs, China hopes to prevent excessive damage to its own environment, while ensuring an adequate reserve of REE to meet its own future needs. Through these actions, China not only aims to control the REE industry, but also the downstream industries that rely on the supply of these REEs and allow China to move up the value chain and produce higher value-added products with a bigger profit margin.
China intends on expanding and developing its domestic manufacturing industry by attracting foreign manufacturers to move their production to China and bring in advanced technologies in exchange for access to a guaranteed supply of REEs and other cheap raw materials, as well as access to the growing Chinese market. Some local governments even make additional efforts to persuade foreign companies to move their production to China. If successful, the establishment of this supply chain would bring with thousands of jobs and an opportunity for this developing country to become a key innovation center. According to the "(Temporary) Regulations of Foreign Investments in the Rare Earth Sector", foreign companies are encouraged to invest in downstream REE industries in China and the development of new REE applications. Note that while the government applies quotas to limit the quantity of REEs that can be exported, it does not restrict exports on REE downstream products, such as rare earth permanent magnetic material.
In response to China’s lucrative incentives, foreign companies such as Toyota and Hitachi Metals announced its plans to move some of its REE component production to China. Korea Development Bank had also agreed to cooperate with Baotou Rare Earth High-Tech Zone to encourage Korean automobile and electronics companies to establish processing factories in China.
The Results of China’s Actions
Figures II and III show that although China produces over 95% of the world's rare earth supply today, it only holds 50% of the total global reserves, therefore China does not have the necessary resources to exert monopolistic control over the long-term production and supply of these rare earth elements. As a result of the increased demand for REEs and tightening restrictions on exports of the metals from China, many countries are in the process of searching for alternative sources, as in the USA, Australia, Brazil, and Canada. The original REE mines in these countries were forced to close down when China had undercut the world prices, and due to the complicated barriers to entry, it will take a few years for the other countries to restart production while China retains its monopolistic hold over the world’s REE supply. However as additional sources of REE production begin again, it will slowly loosen China’s monopolist hold on this market and move towards a more equilibrium state. The recent announcement by Japan in the discovery of a vast REE deposit on the ocean floor further proves that China will not have a long-term hold on the world’s supply of rare earth elements.
In addition to searching for new REE deposits, foreign companies are also actively engaged in R&D efforts to seek substitute materials and looking for ways to achieve higher usage efficiencies through better manufacturing processes. Furthermore they are also ramping-up recycling efforts to reprocess and reuse discarded components containing REE materials. Taking Honda for example; this Japanese auto maker recently announced that it has managed to form the world’s first process to recycle REEs (extracted from nickel-metal hydride batteries as negative-electrode materials) to make new hybrid vehicles. Honda stated that their goal is to extract REEs not only from nickel-metal hydride batteries, but also from other various auto parts. However, the access to a reliable supply of resources to meet their current and projected demands remains the top priority. The table below (Figure VII) shows a number of REE alternatives used by different companies.
Figure VII: Alternatives to Using REEs
Source: Rare Earth Investing News, Asahi Shimbun.
|Toyota ||Toyota had developed a method to manufacture hybrid and electric vehicles (EVs) without the use of REEs.|
|Hitachi ||Hitachi announced a highly-efficient permanent magnet synchronous motor that employs a REE free, iron-based amorphous metal core.|
|Ford ||Ford announced that its nickel-metal-hydride batteries will be replaced with lithium-ion alternatives.|
|Renault ||Renault announced that it has begun to produce electric motor without permanent-magnet.|
|TDK, Shin-Etsu Chemical ||Both TDK and Shin-Etsu Chemical have developed a magnet where dysprosium is painted on its surface alone rather than being mixed into the entire magnet body, reducing the dysprosium usage by half. |
|Panasonic ||Panasonic introduced equipment to extract magnets made of neodymium. The neodymium will be reused in air conditioner compressors and in motors for drum washers and other products.|
|Rhodia ||Rhodia Group set up two factories that would produce 200 tons of rare earth elements per year from used fluorescent lamps, magnets and batteries.|
Most foreign companies are still reluctant to relocate their high value production activities to China due to the risk of intellectual property infringement. Even though some foreign companies may build their production facilities in China for a stable supply of REEs, it is highly unlikely that they will share the superior technology with their Chinese partners, thus inhibiting the government’s plan to expand the country’s REE industry into more advanced sector. For example, Intematix, a multinational based in America focusing on the production of rare earth-based phosphors, this company relocated a portion of its production to China but hired only a few Chinese scientists, in order to safeguard its technology.
In terms of future expected demand of REE, according to the Industrial Minerals Company of Australia (IMCOA), global demand for rare earth elements is expected to reach 160,000 tons per year by 2016. It is also estimated that China’s demand will reach 105,000 tons, while China’s export quota is expected to stabilize around 20,000 to 25,000 tons. Based on the above estimates, the non-China annual output would need to be between 30,000 to 35,000 tons to meet the global demand for REEs. According to GCiS calculation, if non-China demand of REEs is 55,000 tons in 2015 and the percentage share of each REE’s demand in 2015 is the same as that of supply (see Figure VI), foreign countries should have the necessary REE reserves and production capacity to be self-sufficient at least in 2015. The extent of self-sufficiency is dependent on success of REE exploration projects. In the long run however, with the ever increasing demand for HREEs, many of them such as europium, dysrosium and terbium are likely to be in short supply given its limited reserves. It has been noted that most of the REE deposits outside of China, even among REE giants such as Mountain Pass and Mount Wild deposits are LREE enriched but severely deprived of HREEs. It is believed that total Chinese deposits contain approximately 80% of the worlds HREE resources.
Due to the nature of HREE materials, these materials are not always economical to separate and thus it is deemed to be in even shorter supply than the total existing deposits. Taking Cerium and Europium for example, they are generally separated by a process of selective oxidation whilst other REE can be separated using a variety of methods such as fractional crystallization, fractional precipitation, solvent extraction and ion exchange methods. The first two methods, which are laborious and inefficient, have been superseded by more effective techniques such as ion exchange and solvent extraction. However HREEs are difficult to extract using both the ion exchange and solvent extraction method, therefore researching more efficient recycling processes for HREEs should be a top priority for foreign companies that want to reduce their dependence on Chinese REEs.
The good news for China is that due to its extensive experience in this area, it has the technological superiority in separating and refining REE oxides into metals. Currently mining companies in China such as Inner Mongolia Baotou Steel Rare Earth Hi-Tech Company and China Minmetals Corporation are dominant players in the REE supply chain, especially in the mining, processing and refining stages. The two players hold a majority share of this business, although there are also plenty of small companies such as Ganzhou Qiandong Rare Earth Group Company. While most of the world’s mines outside China were closed by the early 2000s, China took this opportunity to invest heavily in REE refining and production technologies, gaining further competitive advantage in the industry. One of the most important developments to China’s REE success is the relatively cheap process that uses hydrochloric acid rather than nitric acid, coupled with other techniques many Chinese firms have managed to refine higher purity extractions with high quality. According to the GAO report, China produces about 97% of rare earth oxides and approximately 90% of the metal alloys; it also makes around 75% of the NeFeB magnets and 60% of the SmCo magnets. Thus even if foreign countries succeed in REE production, they would still rely on China for further processing and metal fabrication over the next few years in that it takes time to establish the appropriate infrastructure for processing REEs. To deal with this situation, many companies have already taken precautions to limit their chances of facing such a problem. Some examples include Molycorp acquiring the Japanese subsidiary Santoku America that produces both NdFeB and SmCo alloys, and purchasing a majority stake in AS Silmet, a rare earth element and rare metals processor; Frontier Rare Earths cooperating with Korea Resources Corporation on REE separation process by building a separation facility in South Africa; Lynas and Siemens forming a joint venture to produce magnets used in wind turbine generators. It is still unknown how long foreign companies would take to develop the same level of skill set outside China for downstream production activities, but there is clear evidence that companies are already taking their first steps in this direction.
Both global REE suppliers and users in the downstream value chains have responded actively in the face of potential threat from export restrictions levied on REE produced in China; exploring new reserves, looking for alternative or recycle methods. They must also develop the necessary capabilities to refine and process these rare earths into useable components and implement HREE recycling process on a commercial scale. While global suppliers will gain some hedge on Chinese REE in the coming years, it will take significant efforts in both mining and processing stages to fully alleviate dependence on China for REE.
A shorter version of this article was originally published in Mining News, November 2013.
About GCiS China Strategic Research
GCiS (www.GCiS.com.cn) is a China-based market research and advisory firm focused on business to business markets. Since 1997, GCiS has been working with leading multinationals in sectors ranging from technology to industrial markets, medical, chemicals, resources, building and constructions and a few others.