Vulcan Energy secures near $922m debt commitment for Lionheart project financing
Lionheart is a major lithium and renewable energy initiative located in the Upper Rhine Valley brine field.
China produces nearly 90% of the world’s rare earths and its downstream industry consumes some 70% of the 17 elements used in a variety of hi-tech industries including renewable energy, medical devices and defence.
Following a World Trade Organization ruling, China abolished its decade-old export quota system for rare earths, opting instead to focus on controlling domestic supply.
Following the liberalization of the export regime, official shipments have jumped this year but attempts to rein in the country’s illegal miners and smugglers have been largely unsuccessful. The black market for REEs are put as high as 40,000 tonnes out of total global supply of under 200,000 tonnes.
Beijing’s latest plan to overhaul the industry, not just to shore up prices which have been in decline since 2011, but also tackle the environmental impact of rare earth mining, is centred on consolidation and integration.
The very fragmented industry is being brought together under six large organizations led by the re-named China North Rare Earth Group. The Inner Mongolia-based company operates the Bayan Obo iron ore mine and before the 2010 price surge after Beijing reduced export quotes, produced more than half the world’s REEs as a by-product.
Apart from combining mine output China North Rare Earth and the five groups are being vertically integrated to help modernize the country’s mostly low-tech rare earth separation and refining businesses.
Chen Zhanheng of China’s Rare Earth Industry Association is quoted by InvestorIntel as saying the consolidation process, due to be completed by year end, is helping to stabilize prices just as demand is expected to soar:
“Demand for rare earth ores within China will grow steadily in the next few years. The domestic consumption of rare earths is expected to increase nearly 8.3% this year to 97,700 tons, and is estimated to reach nearly 150,000 tons in 2020, rising 50% from about 90,000 tons in 2014,” according to Chen.
The price index (a rolling 20-day average of REE prices across the industry) compiled by the association showed the first tentative signs of a bottom at the end of September and as Chen points out, after years of declines there may be little downside left.
September 24 Index at 110.6. Source: Association of China Rare Earth Industry
2 Comments
Philip S. Baker
Carbon reduction initiatives, including carbon pricing, are likely by 2020 to engender a significant increase in investment in clean-energy applications such as electric and hybrid vehicles and fluid cracking catalysts for petroleum refining in the US, the EU and Asia Pacific. In addition, the escalation of proxy military conflicts within the MENA region will translate into a rise in defence industry output in the US, the EU, Russia, China, India, Japan and Israel.
These two developments portend an increase in demand for light as well as heavy REEs that are embedded in these clean-energy and defence applications. However, with very little new REEs supply capacity coming to market in the next 2 years, there is likely to be a tightening of the supply-demand balance. As a consequence, we can expect a rise in REEs prices from the nadir that has been in evidence since the end of 2014. Indeed, the latest available USGS data show that at the end of 2014 average REEs oxide prices had slumped to the depressed level of US$5/Kg Fob China for the light REE lanthanum and US$340/Kg Fob China for the heavy REE dysprosium. The extent of the price collapse is put into sharp relief when we consider that at the end of 2011 lanthanum oxide was fetching US$51/Kg and dysprosium oxide a whopping US$1,410/Kg. Against the backdrop of an impending tight supply-demand balance, one envisages that Molycorp’s Mountain Pass REEs operation in California will be brought out of care and maintenance as a near-term supply response. Reverse supply chain management to facilitate greater and more efficient REEs recycling is likely to be yet another near-term supply response.
Finally, resource nationalism as well as geopolitical tensions in the South China Sea will prompt a renewed preoccupation with energy independence, given that the world’s largest reserves of natural gas are concentrated in Iran and Russia. A case in point is the UK where a rise in Scottish nationalism, including resource nationalism pertaining to oil wells in the North Sea, could nudge Britain into adopting a more serious focus on achieving energy independence through shale energy development in parts of Lancashire and Essex. The Ukraine, Poland, Argentina and China could follow suit. In these circumstances, there is likely to be a sustained glut in the global energy market resulting in low energy prices of sub-US$50/barrel far into the future. In this emerging scenario, and as yet another supply response, it is not inconceivable that we could witness a revival of some energy-intensive, solvent-based REEs extraction projects that proved to be uneconomical towards the end of 2014 when (according to the EIA) the price of North Sea Brent crude oil was roughly US$91 per barrel.
Aga
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