Archive | October 2011

Lynas rare earth output delay shows nothing can be taken for granted

The production of rare earths outside of China took a bit of a set-back with Australia-based rare earth producer Lynas announcing a delay with actual production now not taking place until the first half of 2012.

The announcement will not come as a surprise to many in the industry given the problems the company has had with its Advanced Materials Plant in Kuantan, Malaysia, which has been subject to intensive local protests.

Rare earth protests

Locals are worried about potential radiation levels from the plant and have mounted a highly vocal campaign against it, which has even spread to Australia.

The company told the Australia Associated Press earlier today that the set-back related to the final procurement packages tied to its construction and contractor delays that meant the refinery will only come on line during the first half of 2012. It had originally hoped to ship product by the first quarter of 2012.

Molycorp in the US, meanwhile, is bringing its production forward by three months, but there are industry sceptics who wonder whether this is achievable as well.

Rare earth projects are extremely capital and technology intensive relative to many other types of mining, take many years to bring online and due to their complexity can be subject to unforeseen problems that inevitably lead to delays.

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Solar rally in sight?

Solar power ready to flare

After the seemingly never ending discussions with participants in the minor metals industry about the stagnant markets and lack of business resulting in most metals prices drifting, it was a pleasant change to walk into the Solar Power UK 2011 Conference and Exhibition in Birmingham UK this week and feel an air of energy and optimism.

Although the solar market is having a difficult time at present, it is nevertheless an industry in its infancy with great potential for growth.  And with comments about improved business in October, it is hoped that this could be an indicator of a possible end of year rally.

Lower subsidies by government through the FiT programmes have resulted in slower demand in markets like Germany and the UK solar industry awaits the government decisions due in 2012 about future subsidy levels. The mass market has already been hit by lower tariffs and people speaking to Metal-Pages were fairly optimistic that the domestic tariffs would not be hit too hard. Also as one participant pointed out, the cost of solar panels is falling (one company mentioned a drop of 49%) which balances out the lower FiTs.

Bright lights for ICC

One point that came over very strongly in the presentation by Jeremy Leggatt of Solarcentury, the London company in charge of solar engineering and installation of the solar system on the roof of the new Blackfriars station in London, was the need for the industry to unite its voice coherently to the government in order to stand up again the major energy companies clubbing together to maintain the status quo.

German panel makers including Solarworld, Q-Cells SE and Conergy AG have been struggling to offset slower demand growth in their home market, which has lowered subsidies twice since June 2010. Phoenix Solar AG, a German solar developer, on Oct. 12 cut its full-year earnings outlook, saying it didn’t expect a year-end rally in Germany, which added a record 7,400 megawatts of panels in 2010 as sales surged in December.

Germany added about 1,610 megawatts of panels in the third quarter, according to Bloomberg calculations based on Bundesnetzagentur figures. That compares with 1,681 megawatts in the year-earlier period.
“These numbers signal that the market is picking up,” Henning Wicht, a solar analyst at researcher IHS Isuppli, said by phone from Munich. He had forecast 1,530 megawatts for the third quarter. “Developers and contractors tell me that October is very good, so there may be a year-end rally in store,” he said.

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European demand for cerium picking up, neodymium buying brisk

Despite all the doom and gloom in Europe and concerns that the continent could slip into a severe recession, buying for certain rare earth elements has been picking up in the last few weeks.

A close shave for rare earth prices?

Opinion among traders is devided as to whether that’s down to just re-building depleted stocks by consumers or whether it’s a case of taking advantage of lower rare earth prices, that may only be temporary because of China’s determination to curb smuggling and to very strictly enforce quotas and environmental rules.

One trader mentioned that he’d heard that the Chinese government is even using satellites to monitor activity at rare earth mines that have reached their production quotas and are forced to shut down. They use the pictures to see if there is any lorry traffic coming in and out of the mine. Also, officials have been tasked with closely monitoring activity in the industry and are not afraid to be intrusive and heavy handed. China currently supplies over 95% over the world’s rare earth needs.

Watching for rare earths

Back in Europe buyers from the ceramics, pigments and glass polishing industries are reported to be buying more cerium, after a long period of relative inactivity in terms of procuring rare earths. Some of them have managed to substitute cerium for cheaper alternatives.

For neodymium some of the big magnet makers are reported to have returned to the market, while demand ultimately aimed at the automotive and mobile phone sectors is said to be ongoing.

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Calm before the storm or measured response?

Batten down the hatches...

The grim economic news in the newspapers may make depressing reading, but having talked to participants at both the TIC meeting in Almaty and Ryan’s Notes conference in Scottsdale over the last couple of weeks a more positive impression from the metal’s industry emerges.

Traders generally seem to be pretty comfortable, they have made good profits earlier in the year and have now reduced their positions to take a more cautious stance in the light of the problems in Europe, the fears of a double dip recession in the US and a slowdown in China. Consumers likewise are taking a cautious approach to purchasing, running down inventories and buying hand-to-mouth. Mostly though both traders and consumers are reporting that business is not as bad as the economic news would seem to suggest and certain sectors like aerospace seem to be doing extremely well.

Post-Lehman dip

This could of course be the calm before the storm but the general consensus seems to be that next year will not be too bad. No one is expecting a boom, but quite a few felt that we could see a dip in demand between now and the end of the first quarter and a pick up thereafter.

The financial crisis following the Lehman Brothers collapse saw a very rapid dip in metal prices followed by a strong rally about six months later, this time prices may show a more measured response to the problems in the economy.

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New generation aircraft increasingly titanium dependent

Boeing 747-8 - good for titanium

Despite recent cancellations and potential push-out of orders as airlines hit economic turbulence, Boeing has amassed a backlog of some 3,500 commercial aircraft, while its rival Airbus is sitting on a backlog of more than 4,000 jets.

This week, Boeing progressed from 2 to 2.5 of its newly certified 747-8 aircraft being built per month at Everett, while production of the 787 is set to rise to 10 per month by 2013 and 777 will go from 5 a month to 8.3. Production on the 737 is being ramped up from 31.5 to 35 in early next year, to 38 per month in the second quarter of 2013 and then to 42 per month in the first half of 2014 – all of this against the current macro-economin uncertainty.

“A lot of the rationale behind increasing our production rate relates to the backlog we’ve already got,” Boeing chairman, president and chief executive Jim McNerney told analysts on Wednesday. One could imaging potentially disastrous macro-economic scenarios – a sharp rise in oil prices, Eurozone debt resolutions that will cripple European economies for the next fie years etc.  – that could play havoc with these plans. However, “Based on what we see, we don’t see that there is a scenario that will force us to scale back,” McNerney said.

Jumbo interiors

This year, Boeing has cut its delivery guidance from 485-495 to 480 commercial jets, due to lower deliveries of the 747-8 and 787 – of which 15-20 will be delivered altogether. However in 2012 it is getting ready for a real takeoff. The re-endined 737 version, 737 MAX has amassed 500 orders in the first month of its launch, while the 787 Dreamliner is now sold out until 2019, with 821 on firm order and 200 options. China Eastern, however, could not wait for delayed deliveries and chose to swap its order for 24 Dreamliners for 45 Boeing 737s. At the current rate it will not be until 2015 that Boeing will start wiping out deferred production costs on the delayed 787 programme.

It is also not until then that it would have eaten through the raw material inventory and that fresh titanium demand would surface, according to Boeing’s presentation at the Titanium 2011 conference earlier this month. Airbus, at the same conference, said it did not have excessive stocks.

What bodes well for titanium, is that all new generation aircraft are increasingly titanium dependent in an effort to reduce the aircraft weight and, correspondingly, fuel consumption, without compromising safety. Looking forward 20 years Boeing sees growth being driven by regional aircraft – such as the 787, Airbus – by large aircraft carrying more passengers on long-haul journeys. The much-awaited Dreamliner is 15% titanium by weight, while Airbus’s A380 consumes several times more titanium than a single aisle plane. This growth however is not without hiccups.

Boeing is currently struggling to bring weight down on the 747-8 which failed to meet its lightweight expectations. An industry insider told Metal-Pages meanwhile that Airbus’s A380 customer Qantas is unhappy with how much fuel it takes to get the massive super-jumbo up into the air, meaning it struggles to stretch to a long-haul Australia-US flight without refuelling. At the same time, Boeing appears to have had enough of grappling with delays on getting new planes off the drawing board and into production – and has shelved plans for a redesigned 737, opting instead to re-engine it.

Boeing engine - critical metals

Indeed the major winners from this will be engines – although this is not being reflected currently in prices of metals, such as chromium, molybdenum, rhenium, tantalum and others that go into engine manufacture. With an engine under each wing, more of these will be needed to feed the world hunger for new jets and fuel efficiency. As engines get larger and hotter, so the materials that go into turbines need to get more corrosion and heat resistant – which is where metals like rhenium, tantalum and hafnium come in. Pratt & Whitney is trying to go the other way with its geared turbofan engine – making it more fuel efficient without raising temperature to extremes requiring high use of expensive rare metals. Following in GE and Rolls-Royce’s footsteps it is also looking to reuse and recycle – this requires a co-ordinated reclamation programme with airlines to recover old engine parts and a partnership with recyclers. Watch this space.

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Hedge funds consider investing in rare earths

The Ticker

A ticker for rare earths

We’ve heard of several reports that hedge funds are sniffing around for rare earths, apparently attracted by the strong fundamentals for these markets.  These rumours have been doing the rounds for several weeks now and some are thought to be close to committing millions of dollars to buy up rare earth elements in the hope of higher prices later on.

Of course in China this type of speculation has been going on for a while from everything from base metals, petrochemicals through to rare earths.

According to traders we’ve spoken with, hedge funds are enticed by the fact that prices have fallen in the last few months and this could be a great buying opportunity before the rally resumes brought on by China’s determination to squeeze availability – something it can well do given it supplies 95% of the world’s rare earth needs.

Rare earth oxides

Rare earth nest eggs?

However, it sounds like the hedge funds haven’t got a clue, which elements to buy, while others have at least done a bit of homework. Cerium and lanthanum would appear not to be a great bet with the heavies possibly being the place to go.

However, hedge funds don’t have a lot of familiarity with what is after all a rather obscure sector, this does sound like a recipe for bad investment decisions and tears.  After all have rare earth prices really bottomed out yet? And if not when is that likely to occur?  Markets that rise quickly and can fall quickly to.

Indeed, what about all the substitution efforts going on in one consuming industry after another – with Japan in complete overdrive looking to recycle better, use less material, discover new sources of material or not use it at all. When will that hurt long term prices of say neodymium and dysprosium?

Explaining away big losses on investments in obscure exotic materials could be quite a difficult task and backers would no doubt retort: “why the heck are you investing my money in something you clearly don’t understand?”

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China void needs to be filled fast or some rare earth markets will be lost forever

China’s efforts to curb rare earth exports is really putting the onus on rare earth producers outside China to come up with material fast. Molycorp is certainly rising to the challenge by bringing production expansions forward by three months.

Some of the other smaller explorers are also speeding up production, in their case it will be their first material, in a bid to fill the growing void left by China.

Much is at stake. Failure for new outside-China production to come online will simply spur efforts to substitute rare earths, and in many cases once that is achieved, such as with new types of electric motors, those markets could be lost to rare earths for ever.

Magnetic substitution

Magnetic substitution

The automotive industry is learning to use less rare earths and will eventually substitute them all together in some applications. It will take time, but once done, they may not be keen to switch back as it will impact tooling, production methods etc… and may be fearful of being back in the same position again at some point in the future worrying about supplies.

What seems to erk many consumers more than high prices are fears over security of supply and Molycorp seems very conscious of those concerns.

However, other players need to come online quickly as well or a lot of rare earth markets could be lost forever. Many buyers won’t feel comfortable with being in a position of either Molycorp or China for their rare earth supplies.

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China’s OPEC moment

China's grip on REEs

China's Grip On REEs

Mark Kristoff, president and CEO of Traxys North America said at the Ryan’s Notes conference in Scottsdale that “China is keenly aware that they are a very effective OPEC for rare earths”. Interesting comment given that China is in US lawmakers sights for violation of trade rules.

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REE big guys close production, but will prices fall?

Rare earth magnets

Rare earth magnets

News that some of China’s biggest rare earth producers are closing temporarily, perhaps for a few months, could mean that the recent slide in domestic prices could halt. But, as with everything in China, it’s unclear whether the closures will continue, actually happen, or that unofficial material will rush in to fill the supply gap.

Consumer demand is at rock bottom anyway after a year of runaway prices and in some rare earths stocks are high. Throw in the fact that the whole world seems to be withdrawing from markets in a wait-and-see attitude to whether a global recession will kick in. Prices could continue to fall no matter what the big guys do.

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Molycorp tightens grip on non-China rare earth market

Mt Pass Mine in California

Mt Pass Mine

Mark Smith’s recent blog shows that Molycorp has a firm grip on the need to firmly plant the company’s ownership of the rare earth space. The company, which is the western hemisphere’s only rare earth producer at the moment, is very conscious that it needs to maintain that stake while it has that market leadership.

Competitor Lynas seems mired in local politics at its nearly-completed LAMP processing facility in Malaysia with local and international environmental groups increasing the pressure on government to not allow the import of rare earth concentrate. Nothing has been resolved yet and the Australian company still doesn’t have permission from government to go ahead. Elsewhere, Great Western has its Steenkampskraal in South Africa. But that seems a while off yet from producing rare earths for export.

Molycorp's Mark Smith

Molycorp's Mark Smith

The super-charge sprint to start its new rare earth processing facility at Mountain Pass three months earlier than planned in California will help Molycorp deliver more product to its customers sooner and will increase production of rare earth product in 2012 by approximately 3,500 metric tonnes.

The upping of Molycorp’s stake to 100% in the recently acquired Molycorp Silmet rare earth processing facility in Estonian announced today gives it the muscle to drive home the advantage that it has one of the two rare earth processing companies in Europe.

A new processing plant in California added to the news recently that it had found a new supply of heavy rare earths near to its existing mine and facilities at Mountain Pass in California, will keep shareholders and investors more happy after recent jitters over a possible fall in demand for REEs due to recession worries in the west and a slowdown in China.

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