MarkWatts'  Instablog

Send Message
Mark Watts is the editor of the Industrial Minerals website and has written extensively on global markets for minor minerals such as rare earths and lithium. He has conducted interviews with other media outlets seeking expertise on these industries. He has three years' previous... More
  • Japan takes action to avert rare earth supply crisis 0 comments
    Nov 19, 2010 11:42 AM | about stocks: IQ, LYSCF, TYHOF, GWMGF, SSUMY

    Over the last decade the world’s biggest importer of rare earths, Japan, has been looking at ways to decrease its reliance on China as a steady source of supply.

    This issue may have been a long way down the national agenda during the earlier part of the decade, when rare earths were cheap and plentiful, but recent events have shown that the Tokyo government was underprepared for inevitable faults in the supply chain.

    Japan’s hi-tech industries are reliant on rare earths for a wide variety of applications, including LCD screens, rechargeable batteries for portable electronics, hybrid and electric vehicle motors and fluorescent lamps.

    Imports from China – the source of 97% of the world’s rare earths – have been hit by two interconnected problems.

    Supply chain broken

    Demand for rare earths has bounced back strongly from the economic downturn both within China and in developed economies such as Japan and the USA. At the same time, China slashed its export quotas for the year by 40%, leaving a large supply-demand imbalance.

    According to China’s Ministry of Commerce, the country exported 32,200 tonnes during the first nine months of 2010, already exceeding the annual export quota of 30,259 tonnes. Half of the material was shipped to Japan.

    This indicates that many Chinese producers and traders had depleted their quotas by the end of the third quarter and could be unable to export material until the start of 2011.

    Meanwhile, China’s ‘unofficial ban’ on rare earth exports to Japan appears to be ongoing, despite strengthened diplomatic ties since the dispute over a fishing boat collision in September, which marked the start of the embargo.

    “No shipment has yet been made,” one Japanese trader said to IM on 16 November. While a source from a Japan-based trading house commented: “Japan could import rare earths from China temporarily but trade [between the two countries] has stopped again.”

    A Japanese government official in late October said Japan’s rare earths stockpiles would run out by March or April next year, even with cooperation between domestic companies and increased imports from alternative sources.

    Rare earths are now on the agenda at the top level of Japanese government. While negotiations with the Chinese to normalise exports are an immediate priority, Tokyo must act quickly to decrease reliance on its neighbour across the East China Sea.

    Japan takes action

    In 2009 Japan imported 83% of its total rare earth imports (19,290 tonnes) from China, with smaller amounts coming from France, the USA, Estonia and India, according to Japan’s Institute for Geo-Resources and Environment, AIST.

    The challenge for Japan is to reduce this percentage figure as soon as possible, and it is attacking the problem with four policies: alternative sources, recycling, reduction and substitution.

    The search for alternative supplies has seen the major Japanese conglomerates forming joint ventures to fund exploration projects outside of China.

    “By 2014, almost a third of Japan’s rare earths supply could come from Japanese joint-venture projects and recycled rare earth oxides in Japan,” AIST’s Yasushi Watanabe said.

    While reports vary on the exact progress of these projects, targeted start-up dates within the next two years could prove optimistic. Rare earth operations are notoriously difficult to commercialise due to the complex metallurgy involved in separating the various oxides.

    Japan taps India, Vietnam and Kazakhstan

    The most recently agreed partnership is between Toyota Tsusho and Indian Rare Earths – already a small supplier to Japan. Toyota plans to invest about $32m. in a processing plant at the Indian company’s deposit in Orissa state.

    The initial announcement said the processing plant could produce 10,000 tpa light rare earth oxides by May 2011, but AIST estimates a capacity of 4,500 tpa in 2012.

    Toyota is also investing in a project in Vietnam, joining state-owned Vinacomin and Japan’s Sojitz Corp.

    Located in the northwestern Lai Chau province, the Dong Pau project is estimated to be able to produce 3,000-7,000 tpa of mainly light rare earths by 2012-13.

    AIST believes the first Japan-backed project to start production could be Sumitomo’s joint venture with Kazatomprom in Kazakhstan.

    Sumitomo has taken a 49% stake in the joint venture, Summit Atom Rare Earth Co. (SARECO), located at Ust-Kamenogorsk in the east of the central Asian republic.

    AIST believes the project could start up in 2011 with a capacity of 3,000 tpa, but previous estimates suggest the project may not come on stream until 2015 but with a much larger capacity.

    Meanwhile, the Japanese government has signed agreements with both Mongolia and Vietnam to cooperate on developing new mines.

    In addition, Japan Oil, Gas and Metals National Corp. (JOGMEC) – formed to secure stable supplies of resources to Japanese industries – has acquired majority stakes in rare earth prospects in Australia, Vietnam, Canada and the USA.

    Japan’s strategy also includes recycling rare earths and reducing volumes in several applications with new technologies.

    Despite the optimistic targets set for the joint ventures, Japanese industries could still be dealt a lifeline by Lynas Corp’s Mt Weld mine in Australia – expected on stream in Q3 2011 (see opposing page) – and Molycorp’s Mountain Pass project in California, targeting mid-2012.

    With hindsight it is easy to say Japan should have prepared for shortages a decade ago when China first introduced export quotas. But few people could have predicted the recent chain of events, which could leave Japan’s vital industries starved of these essential ingredients.

    Disclosure: No positions

Back To MarkWatts' Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.