Rare Earth Q411 Outlook


"2011 has thus far seen prices for most rare earth elements take off in the wake of tight control from over production and export quotas."

It's a familiar story for rare earth market watchers—sky-high prices and tight supply outside of China.

But until significant production outside of China is established, analysts foresee few changes to this trend—barring end users shutting up shop to cut demand.

2011 has thus far seen prices for most rare earth elements take off in the wake of tight control from over production and export quotas. Total production in China for 2011 has been capped at 93,800 tons, an increase of 5% from 2010, while exports have been restricted to 30,184 tons, slightly less than the 30,258 tons permitted last year.

Although Lynas Corporation Ltd. (ASX:LYC) officially opened their Mount Weld mine in Western Australia on August 4th, production from this facility, which will initially be 11,000 tons per year, is not likely to make an impact on the REE market until 2012, as the first feed of rare earths concentrate into the yet-to-be-fully-licensed Lynas Advanced Materials Plant (LAMP) in Malaysia is scheduled for Q411.

In the meantime, Molycorp Inc. (NYSE:MCP) remain the only major producer filling the gap outside of China, and the Colorado-based company has profited nicely from the comparatively modest amount of supply it has been able to pump into REE markets so far this year.

Last month Molycorp's reported production results of 815 metric tons of rare earth oxides for Q211, and also announced that they expected output of 977-1,321 metric tons during Q311, and 1,017-1,377 metric tons for Q411.

Coupled with the sky-high prices most REE are currently fetching, the anticipated increase in output from Molycorp has left some analysts quite bullish on the companyís performance outlook for the remainder of the year.

Prices May Climb Further Still As China Halts Production at Three Mines

One twist that may still play a major role in REE markets before the year is out is the halt in production announced by the Chinese government on Monday.

State media reported that production has been ordered suspended by year's end at 3 out of 8 mines in Ganzhou, Jiangxi Province. The Ganzhou region produces nearly 40 percent of China's rare earths.

Li Guoqing, Director of the Ganzhou City Mining Management Bureau, commented on Monday that it was unknown when production at the three mines would resume, and that an eventual resumption of operations would be based on directives from the provincial government.

Although the shutdown is mostly a consequence of China hitting its annual production quota too early and the government clamping down on illegal mining and exports, it is unlikely to have an impact on the 15,000 tons of rare earths slated to be exported from China over the last half of the year. The prospect of a prolonged shutdown in one of China's key mining regions may well begin to ripple through REE markets during Q411.

EU Reveals It Is Stockpiling Rare Earths to Reduce Dependence on China

Another development that could play out on REE markets over Q411 was the disclosure by the European Union (EU) on Tuesday that they are stockpiling rare earths to reduce their dependence on China.

Speaking to Reuters, Andrea Maresi, press officer for EU industry minister Antonio Tajani confirmed that they were "working to secure supplies of these minerals from outside of the EU, such as from Latin America, or from Africa or other countries like Russia."

"We are trying to improve our sourcing and reduce our dependence on China," he added.

David O'Brock, CEO of Molycorp's majority owned Molycorp Silmet AS in Estonia, revealed to Reuters in a recent interview that he had been approached by the EU about stockpiling, and had advocated stockpiling at least 3,000 tons of rare earth carbonate.

In spite of his conviction that the EU should be stockpiling to offset export restrictions from China, however, O'Brock believes REE prices will level-out in Q411.

"I think that prices have already started to stabilize. And consumers have found their upper boundaries that they can pass on to their customers, unless the Chinese suddenly open the flood gates, I don't see prices dropping and I donít see a continued climb in the prices," he said. -Rare Earth Investing News

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