Australia | Dec 11 2012
– Lynas in trading halt
– Malaysia insists on LAMP waste export
– Rare earth prices continue to fall
– Beijing reacts with industry assistance
By Greg Peel
Australian rare earth hopeful Lynas Corp ((LYC)) sent another shiver down the spines of beleaguered investors this morning in requesting yet another trading halt. Once again the Lynas Advanced Material Plant (LAMP) is suffering as a plaything of Malaysian politicians, seemingly only a heartbeat after the company was able to feed in its first ore.
Media reports suggest the Malaysian government has told Lynas it must export the waste produced by the plant and not stockpile or treat it on site. Radioactive material is typically a by-product of rare earth processing and the government's on again-off again approval for a LAMP temporary operating licence has hinged on this waste and its political implications. The Malaysian Opposition has levered off Fukushima fears to scare the populace into opposing the plant in the first place.
Unfortunately for Lynas, the export of radioactive waste is not that easy. This latest LAMP stumbling block was inspired by comments from the company's head of Malaysian operations that international restrictions on the movement of radioactive waste prevented Lynas from being able to export the material. Four Malaysian cabinet ministers have responded by threatening to yet again revoke the company's operating licence unless the material is exported, the Wall Street Journal reports.
Wherever the material might end up, it won't be in Australia. Under Australian law, companies producing radioactive waste in Australia can deal with the waste in Australia, but Australian companies choosing to take production offshore and thus create waste offshore cannot bring their waste back home.
This morning's trading halt suggests a statement will soon be forthcoming from the company.
It has been difficult enough for Lynas that its LAMP plans have hit so many roadblocks – no licence, a temporary licence, the revocation of the temporary licence, the reestablishment of a temporary licence – forcing a year's delay in original rare earth processing ramp-up plans. Making things even tougher for investors is the lack of any rebound in a global rare earth metals market which has suffered a boom and bust over the past two years due to ill considered Chinese export policy. China boasts around 30-50% of known global rare earth deposits but controls 90%-plus of supply given the rest of the world's near abandonment of expensive rare earth production many years ago.
In late 2010 Beijing attempted to corner the global rare earth market for China's own benefit by introducing new restrictive export quotas. A year later, rare earth prices had skyrocketed out of the reach of consumers. Not only were export markets seriously damaged as ex-China consumers moved swiftly to substitution, recycling and simple shutter-pulling, Chinese producers also saw their markets seriously disrupted by illegal mining and smuggling. Beijing eased back on quotas in late 2011 and prices quickly corrected – very quickly. Soon the 2010-11 price spike was wiped out, and it appeared normal service could be resumed. But the damage has been done – rare earth prices have continued to fall and fall, threatening the commerciality of new and existing projects both in China and globally.
It is in this environment that Beijing has made its latest rare earth policy decision – a decision which has been labelled as “knee-jerk” outside of China and smacks of desperation. The government has set up a special fund, Rare Earth Investing News reports, aimed at developing and upgrading its rare earth sector and supporting producers hit by plummeting prices.
Beijing's initial export restrictions sparked the price spike, and its late easing returned prices to previous levels. The government's next idea was to go the other way and increase export quotas to capitalise on renewed demand lower prices would clearly bring. Even such a suggestion was enough to send prices spiralling lower, and now Beijing is back-pedalling fast. The special fund announcement from the Ministry of Commerce “paints an entirely different picture,” Rare earth Investing News suggests, “and has caused many to speculate on whether the country's dominance of the sector is sustainable”.
The fund will be used to crack down on illegal exploration and mining (although one presumes low prices would have the same effect anyway), and to assist rare earth companies with environmentally friendly equipment upgrades and R&D for high-tech applications. One of China's problems is that while it controls rare earth supply, it falls behind other nations such as Japan in applications for rare earth consumption.
As an indication of how much the Chinese rare earth sector has suffered, one leading producer has halted processing at some of its smelting and separation facilities in a desperate attempt to arrest falling prices, after a 90% fall in year-on-year profit in the third quarter.
This is not encouraging stuff for the Lynases and Molycorps of the world who aim to provide the first significant ex-China rare earth production in decades. Molycorp has previously suggested that “Chinese quotas are no longer meaningful” and that has proven accurate after this latest move. Lynas obviously has its own issues and elsewhere additional ex-China production mostly remains a long way off.
The Chinese rare earth sector itself would rather see stimulus provided to further develop downstream applications for the rare earth abundance it controls. Develop the consumption side of the industry, and China will not have to rely on, nor continue to try to manipulate, rare earth exports. One thing is certain – applications for rare earths in everything from smart personal devices to electric cars, wind turbines, LED lighting and stealth fighters are not likely to wane.
At some price point, at some time, the rare earth market must balance.
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