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Jack Lifton is an Independent consultant and commentator, focusing on the market fundamentals and future end use trends of the rare metals. He specializes in the sourcing of nonferrous strategic metals and on due diligence studies of businesses in that space. His work includes exploration,... More
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  • The Impact of the Japanese Earthquake on the Demand for Rare Earths in the first 1/2 of 2011
    In the short term the biggest problem for the Japanese economy is to provide immediate humanitarian relief to the victims of the earthquake. Cost will, of course, not be a factor in rescue and relief efforts.

    However in the long term the very largest problem for the Japanese industrial economy will be the sudden onset of the need to, in the best circumstances, redistribute and in the worst to allocate and prioritize the supply of electricity between civilian and industrial demand.

    I don't know how much of Japan's national electricity production capacity has been destroyed, but even if there is spare capacity it remains to be seen when the grid in the affected area can be restored.

    It also remains to be seen how much of Japan's industrial capacity has been impaired and which particular industries may have been affected.

    As long as the emergency lasts there will be no need and perhaps no easy way, logistically, in any case to continue either just-in-time or long term deliveries of non fuel or non food raw materials.

    Theoretically Japan will want to bring its export industries back up to speed as soon as possible so as to resume full economic life as soon as possible. Practically, however, some industries will need to slow down so as to allow others to get logistical priorities for humanitarian reasons.

    Japan is China's largest customer for rare earth metals and alloys, but processing such materials is energy intensive, so that such processing may be reduced or even eliminated this year until the essential economy is restored.

    I am going to guess that deliveries of rare earth metals and alloys to Japan will slow dramatically in the next quarter at least, if not longer. Although Japanese trading companies will continue to buy and now stockpile them they will not simply accumulate them for an indefinite period.

    This means a short term increase in the supply of these materials since the production of them is mostly in an unaffected China. If the law of supply and demand is still operating in the real world this should mean a short term decrease in the price of the critical rare earth metals.

    I note, finally, that last year China exported only 10% of its production of the critical rare earth metal, dysprosium, as a metal for others to alloy and fabricate products. If I were a Japanese end user or trading company or one of the same in Korea I would try now and buy as much dysprosium as I could and take delivery outside of China for future demand.

    The rare earth production industry's customers are overwhelmingly in China and Japan. Any impairment of industrial production in either country will have a major impact on global rare earth prices.

    Investors should focus on those rare earth ventures that can produce outside of China the most critical rare earth metals such as dysprosium and terbium and europium. There are ample deposits of the lighter rare earths in development, and thus no further need to worry about the supply of the light rare earths.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Mar 13 7:40 PM | Link | Comment!
  • The Effect of China's New Five-Year Plan on its Domestic Demand Growth for the Most Important Rare Earth Permanent Magnet Metals, Neodymium and Dysprosium
    Chinese domestic demand growth for the rare earth permanent magnet metals, neodymium and dysprosium, over the next five years will be strongly influenced, and, perhaps, determined by the emphases announced in the new Chinese economic development  five-year Plan for industrial policy that has just been put into operation. The general outline of this 12th five-year plan is reviewed and analyzed in the London Telegraph for March 5, 2011, in an article which is entitled "China's five-year plan: key points"

    Before we discuss the specific section of the new five-year plan that influences rare earth metals demand growth you, first of all ,need to understand that China's industrial economy is centrally planned and rigorously controlled in detail, by the China State Council, the executive body of the Chinese Communist Party, which operates in a "King in Council" manner similar to the way in which the British government operated when the king had actual power centuries ago. In the case of the China State Council, of course, it is the "president" of China who is the head of state while the Prime Minister and State Council members are the daily overseers and rulers of the operations of the government. I don't think it's right to refer to the China State council as equivalent to the Chinese president's cabinet as many pundits do. The State Council is much more than an advisory group to the president; it is actually operating as the office of the executive branch of the government, and it consists of powerful men, all members of the Communist Party hierarchy, the men who actually rule China. The China State Council does not recommend industrial policy; it defines, organizes, and controls the Chinese economy in order to achieve the goals of the Chinese Industrial policy.

    The council sets the goals ahead of time for each five year period, and it has traditionally done so by asking the permanent civil service bureaucracy to prepare position papers on their needs and wants prior to the finalizing of each new five-year plan. From these studies the China State Council decides on what the goals of the plan will be and how the state's total resources will be allocated to implement it successfully.

    The current plan just officially promulgated is the 12th one since the 1949 revolution that brought the Chinese Communist party into power, This centralized planning of goals for industry is a legacy of the Soviet Union's evolution of the economic measures thought  to be necessary for the transformation of socialism ultimately  into communism. Needless to say Lenin and Stalin would no longer recognize the policies of the present Chinese Communist party as having originated in their own theorizing and economic experimentation, which was finally an unmitigated disaster and eventually brought about the economic and political collapse of the Soviet Union.

    Second, you need to understand that the job security of a Chinese manager is a direct function of his or her ability to meet the goals of the five-year plan. Only systemic failure can save a manager who does not meet his assigned goals from disgrace and unemployment. Therefore Chinese managers take their assigned goals very seriously. Plans are made in detail by industry in China in collaboration with the central and provincial governments  to allocate the resources of labor, capital, and natural resources necessary and sufficient in the eyes of the planners to meet the industrial goals for production.

    Beijing may alter the timing of the execution of any particular aspect of the five-year plan but local officials have no such power to do so.

    Note well that this is the complete opposite of American practice where legislators if they bother with this type of planning at all set over-reaching goals and then leave it to private industry and capital to meet them. Typically when western politicians simply do not understand a technology, such as vehicle electrification and the production of cost efficient batteries for such technologies, they then simply set goals to be met after they leave office and accept the congratulations of their similarly inclined constituents who like them know nothing of economics, manufacturing engineering, or from where natural resources come and at what rate.

    This is not the case in China where bureaucrats are chosen for specific expertise as well as political reliability.

    The punditry usually refers to the Chinese planning as industrial policy, but it is as much direction as it is just simple policy.

    The Telegraph article contains the following in its translation of the five year plan's key points:

    " Introduce targets for energy efficiency and consumption that will see China finding 20pc of its energy from non-fossil fuel sources by 2015. The contribution of coal and oil to fall from its current 90pc to 80pc."

    When I was in Beijing on August 1, 2010 for the 6th Annual Chinese Society of Rare Earths Summit a speaker representing the Chinese wind turbine electricity generation industry told the conference that "in the next two five year plans, the 12th and 13th, beginning in 2011 China, in order to reduce the usage of coal to generate electricity and to improve energy use efficiency per productive unit of capacity, would add 330 gigawatts of wind generated electrical power, and that this would require a total of 59,000 metric tons of neodymium.

    He said that the wind turbines to be built would use rare earth permanent magnet type generators to save on weight and maintenance. The reaction of the crowd, overwhelmingly made up of Chinese rare earth miners and refiners, it seemed to me was one mostly of surprise.

    I understood why this was so. The neodymium required makes up just 28% of the total typical neodymium-iron-boron alloy that is the composition of a rare earth permanent magnet. Yet the spokesman from the Chinese Wind Turbine Industry had clearly said, and his slide showed, a need for 59,000 metric tons of new, additional, neodymium demand that had not been before added to the demand growth figures anyone had seen. 

    The Chinese businessman next to me had been busy photographing the wind industry spokesman's slides. I asked why he didn't just request a copy of the presentation. His reply was "You'll never get a copy from these guys. They're running trial balloons for the State Council."

    Neodymium is typically around 20% of the total REEs produced by the Chinese light rare earth industry. That total last year, 2010, has been said by Dr Chen of the China Society for Rare Earths to have been just 89,000 metric tons of which 77,000 MT, or 86%, were light rare earths. this means that the Chinese production of neodymium for 2010 was about 15,000 MT. 

    Of the 12,000 MT of heavy rare earths produced in China in 2010 just 7% was reported to be the heavy rare earth, dysprosium, which would mean that 840 MT of dysprosium were produced from the so-called ionic absorption clays in southern China.

    A typical rare earth permanent magnet of the neodymium-iron-boron type contains 3-12% of dysprosium overall-this means that 100 kg of such magnet alloy contains from 3 to 12 kg of dysprosium as well as 28 kg of neodymium. The OEM automotive industry uses the most dysprosium loading, as high as 12%, to give their rare earth permanent magnet based motors, sensors, generators, and the like the maximum service life at constant high temperature use.

    Even assuming that the new demand for rare earth permanent magnet alloy  for the Chinese wind turbine industry uses only 3% of dysprosium and even if the 59,000 tons of neodymium were only 59,000 tons in total of magnets one would still need an additional 1800 tons of dysprosium just for this project as well as an additional 18,000 tons of neodymium! If the demand for new additional neodymium for the wind turbine project is indeed 59,000 tons then a minimum demand for dysprosium could be 6,000 tons, which would be, at current production, the total dysprosium produced for the next 7 1/2 years!

    These demand growth figures, assuming that the need is 59,000 tons of neodymium, would require at least a doubling of current Chinese light rare earth metal production and the total dedication of dysprosium production to this clean tech goal for most of the next decade. If there is a further demand growth from the automobile industry, the current largest user of dysprosium enhanced neodymium-iron-boron rare earth permanent magnets, and that growth parallels the increase in motor vehicle production expected in the next decade then this use alone will add the need for an additional production equal to the entire 2010 production of neodymium and dysprosium.

    We would then be looking at a minimum at a torrid 15% a year growth in the demand for neodymium and dysprosium between 2011 and 2020 just from the Chinese domestic wind turbine industry and the global OEM automotive industry.

    Such growth may be possible for neodymium production; it is unlikely to be achieved for dysprosium unless there is for the first time development of dysprosium resources outside of China.

    The Chinese have emphasized over the last year that they believe their dysprosium resources are being exhausted, and that at current rates of production they have only 5-25 years of production remaining., 

    If the growth of demand for neodymium and dysprosium above are correct then it is most likely that dysprosium will be OR IS ALREADY in short supply.

    Therefore unless rare earth mining ventures with commercially significant dysprosium are now brought into production as soon as possible then clean tech growth outside of China will slow down or stop depending on whether or not the clean tech manufacturer has a Chinese source for REPM containing components and that Chinese source has an export license for rare earth containing components.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Mar 05 4:09 PM | Link | Comment!
  • Why Toyota and Daimler Invested in Tesla

    A classic example of looking at the trees and not noticing the forest is demonstrated by the much hyped “investments” by Toyota and Daimer (Mercedes) in Tesla. The pundits, day-traders, and bulletin-board crowd were simply ecstatic that Toyota and then Mercedes  had recognized that the future of the two trillion dollar OEM automotive industry was to be altered by the actions of a silicon-valley entrepreneur who had openly said that making his money took genius whereas Detroit was simply a land of overpaid lesser qualified managers whose work anyone good do better.

    At the time of the so-called Toyota investment in Tesla’s “technology” I, of course, being a lowly Detroiter-though not, thank goodness, a bean counter-read the details, and in about a Detroit-minute decided that since Toyota had just become stuck with the total ownership of the Fremont, California "NUMMI," New United Motors Manufacturing Inc, assembly operation it had shared with the then going bankrupt General Motors Corporation it must be hiving off the dead weight of that plant to Tesla, and in order to sweeten the deal it, Toyota, must be allowing Tesla to announce a 60 million dollar price discount as an “investment in Tesla.” I felt sorry for the ego-driven Tesla genius who had just actually paid someone to take a dead-weight off of their hands. I admired the Toyota managers who had just made lemonade out of a very big lemon.

    As for Mercedes, besides this deal with Tesla, it had also once contracted with Cobasys (Chevron Ovonic Battery Systems) to have nickel metal hydride (rare earth based) batteries made for its planned hybrids during the mid-2000s. Cobasys failed to deliver batteries according to specifications and  terms and Mercedes sued to recover its pre-payment and loss of business potential thus giving a boost to that company’s, Cobasys',demise. Yet I do not remember anyone hyping when the agreement was signed this last attempt to manufacture NiMH (nickel metal [rare earth metal] hydride) batteries in America as Mercedes seeing into the future .

    When Tesla fails as a mass market car maker will this make Toyota’s and Mercedes judgement look bad? No, it will not, because:

    1.) Toyota’s investment in Tesla allowed it to reduce its liability to the State of California by passing that on to Tesla, and to get some Green P.R. on the cheap, and

     2.)  Mercedes investment is just and will soon be was just an engineering hedge. This means that Mercedes paid to take a look at a technology and pre-negotiate a license in case that technology worked out and became a fit to Mercedes marketing plans.

    Toyota doesn’t need anyone’s help to develop power trains for electrified cars, and it makes its own traction batteries for its electrified vehicles.

    Daimler Benz also does not need the help of engineers for whom a glorified laptop battery is a fuel source for a vehicle. Like Toyota it, Daimler, wanted to have a look at the total car technology. Now it has.

    What intrigues me is the attitude of the financial and so-called technology press. They hype the initial agreements without bothering to understand that the driver for those agreements is simply to investigate a technology.

    The real skill of the Tesla management is its ability to make successful OEM automotive producers pay fairly large sums just to have a look at a technology.This, I admit, is the real function of hype for any technology.

    The real failure is on the part of the financial press, which doesn’t seem to understand how businesses of any kind operate and to misunderstand completely the detailed operations of engineering based buisnesses such as automobile manufacturing. Certainly they never report the failure of a technology to live up to its hype if they first did the hyping themselves.

    Robert “Bob” Stempel, former Chairman of General Motors, was interviewed a few days ago by about the future of the lithium-ion battery in the OEM automotive space. He is very positive about the long term ultimate success of vehicle electrification using li-ion batteries as the power source, but as to Tesla he pointed out that my thoughts back then were right. 

    The interveiwer said:

    "Yet Mercedes is using Tesla batteries in its test fleet, and Toyota has partnered with Tesla."

    GM's former CEO answered: 

    "The Toyota/Tesla partnership arose out of a series of other issues. It was really a convenient marriage for Toyota, because they needed to do something with the Fremont plant. When you unravel that story, there's a lot more to it than just batteries. And Mercedes has sold off part of their investment and is backing away from that. That multi-cell concept is very, very difficult, so I think you'll see Mercedes moving toward bigger cells and fewer of them. They wanted to get their feet wet on an experimental basis so were trying a little of everything."

    The above "real' explanation of the interest of Toyota and Daimler in Tesla seems too simple for most, but I think Mr Stempel is entirely correct in his analysis of the business and engineering drivers for that interest. 

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Feb 24 9:28 PM | Link | 1 Comment
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