The current trade dispute between China and the United States will almost certainly influence the rare earth elements (REE) market in the not-so-distant future.
First, let’s consider that U.S. President Donald Trump has threatened to raise tariffs on steel and aluminum imports invoking Section 232 of the Trade Expansion Act of 1962, which permits action based on a threat to national security.
Demand for key REEs dysprosium and neodymium as magnets is expected to rise sharply as they come into favour among designers of electrical vehicles (EVs).
Tesla announced it will switch to permanent magnet motors in the Model 3 Long Range models, given their smaller size, higher torque density and improved efficiency, according to research group Roskill. This is a steep change in Tesla’s strategy, having previously used asynchronous reluctance (induction) motors in its Model 3 RWD standard and Model X AWD vehicles. Chevrolet is already using permanent magnet motors in its Bolt EV model.
On the supply side, China controls 95% of REE supply. This percentage would be higher were it not for the start-up of the massive Lynas mine in Western Australia, basically the only initiative to see the light of day from the clutch of projects that arose the panic of 2011 when China reduced export quotas to a minimum.
The only rare metals mine in North America belonged to Molycorp Minerals LLC, which operated the Mountain Pass (MP) mine in California until 2015 when it entered bankruptcy proceedings because of prolonged low prices of rare metals. The boom-to-bust cycle in the REE market has ironically served the purposes of ensuring that non-Chinese REE deposits stayed in the ground.
This is where it starts to get interesting. A consortium of investors backed by China’s Shenghe Resources Holding Co. won access to the mining rights to MP through an auction process last year. ERP Strategic Minerals, the runner-up in the auction, suggested that the sale might be blocked by the Committee on Foreign Investment in the US, a government body that can stop a sale of assets deemed of strategic importance. ERP is allied with Oaktree Capital Management LP, the owner of all processing equipment at the mine site, according to Bloomberg.
Trump issued an Executive Order (EO) in December classifying a host of non-fuel minerals as essential to the economic and national security of the U.S. The list included rare earths, with a 100% import dependence. An article by the National Review highlighted the importance of several REEs on this list, including dysprosium and neodymium in hybrid electric vehicles (HEVs), and indium and tellurium in thin-film solar panels.
Aside from cars and solar panels, REEs make magnets 40 times stronger. They improve the strength and heat resistance of metals and silicon. They filter harmful light in glass, improve the color in TVs and computer monitors, and cut greenhouse gas emissions in catalytic converters. In sum, essential to industry.
Taking aside geopolitics and just looking at the supply and demand fundamentals, Roskill sees sales of HEV/EVs rising to 9.4 million units by 2020 from 3.2 million units in 2016. Prices rose across the REE spectrum in 2017 in anticipation of greater demand for new use industries. REE supply will be critical to the future of the US automotive sector.
This confluence of events is likely to draw investor interest once again to companies who have advanced projects in jurisdictions outside of China. Keep posted for a soon-to-be published article for Search Minerals Inc. (TSXV: SMY), one of the companies that has been advancing a project in Newfoundland since the REE rush of 2011. Look also at Peak Resources Ltd. (ASX: PEK), which is developing a project rich in neodymium-praseodymium in Tanzania.