Brazil

2012: The Recognition of The Age of Critical Technology Materials

The following essay was written over New Year’s weekend, 2011-12. My theme is that the rare earths supply frenzy has exposed an irreversible shift in the demand/supply picture for all technology materials, not just the metals, but also the energy minerals, and the minerals necessary for agriculture. The only mining ventures today that have the potential to be profitable on a stand-alone basis are those that can produce at the lowest cost in the global marketplace and the breakeven point of which is low enough to so they can maintain production at very low levels thus holding on to their customers.

America’s technology materials mining industry can prosper now only by vertically integrating to supply the domestic market first. Surplus production can be exported from several points of a total supply chain thus reinforcing capacity flexibility and dropping the breakeven point for the whole supply chain. This is smart globalization. Just as an aircraft flight attendant tells you to connect your oxygen first before trying to help anyone else I am telling you to build total supply chains for technology materials domestically to ensure that you can help yourself before you try to help others.

Note that by “American” I mean North American. The North American market for producing end use technology materials is 90% in the USA, but the production of those materials and at least half of the requisite supply chains can be constructed in Canada. There has never been a better opportunity to make NAFTA into the basis for a world class technology materials production economy.All that is really needed now is insightful finance and much better educated legislators driven by something other than re-election and greed. Call me a cynic, but Happy New Year.

The unprecedented and unexpected growth in total demand for technology materials for the production of fabricated goods, energy, and food since the beginning of the 21st century has changed the dynamic of the global materials market.

The response of American and European style capitalism to this sudden rush of demand has until now been to treat it as a problem to be resolved along traditional lines by raising the prices of the affected “commodities” until the “opportunity for profit” thus created resulted in additional supplies to relieve, or at least, to limit, the upward price pressure. “Demand will create supply” and “shortages will be ameliorated by surpluses” were among the responses I heard from American and European industrial procurement and planning managers. I was among those who then raised the “security of supply” issue only to be told that it was a non-issue due to the fact that the amounts of all materials in the earth’s crust made the potential supply infinite.

It was impossible at first, and it is not much easier now, to explain to industrialists and financiers that only resources the mineral deposits of which are concentrated enough to be recovered and purified by known and economical technologies can be called even potential supplies. The greed, short-sightedness, and poor general science education of our current politicians, industrialists, and financiers has let America and Europe sit back and not only observe but actually assist our economic competitors to gain such an advantage over us through focused acquisition and management of natural resources that the USA and Europe, in order to survive economically, must now restructure our financial as well as our remaining industrial assets in the hope of salvaging some competitive advantage through maintaining a lead in technological innovation.

Yet like the Mahdi’s soldiers who wore talismans to ward off bullets our financial, industrial, and political elites raise the banner of an outmoded form of independent operator capitalism to ward off the advances of a differently structured and focused Asian capitalism wedded directly to the finances and centralized direction of an immense nation able to drown the individual western capitalists in a tsunami of money not for the sole purpose of acquiring more money but mainly to acquire ownership and control of critical natural resources so as to make their home nation(s) self-sufficient in natural resources and energy.

The western capitalists serve the purpose of the eastern capitalists by choosing to concentrate on short term gains while the Chinese, for example, acquire resources for their use to create products and jobs not for speculation.

The problem of course arises from the fact that this growing demand for natural resources has not been created by the USA, Europe, or Japan, but almost solely, at this point, by a new player on the world trading stage, the Peoples Republic of China (PRC).

I believe that 2012 may finally see a recognition by western strategic investors that the long term outlook for the global demand for technology materials is one of continued high net growth and that the present rate of supply of these materials already is at the point where it cannot even now keep pace.

Junior miners, which are basically exploration companies, playing the same old game of appearing to be on the cusp of “rushes” are really just bit players in the new world of natural resource supply. The economic cycles and turmoil in the old capitalist societies of the west and of Japan have taken precedence in the news over the dramatic growth of overall demand for technology materials, but the focus on short term gain from trading junior mining shares in a casino atmosphere is no longer viable when looking at ensuring the security of supply of technology materials.

Ownership of ore bodies and other such natural resources are only of long term value when they are developed to the stage where they contribute directly to Increases in the rate of production of technology materials. This requires years of planning and continual development. This cannot be achieved just by issuing shares to raise capital. The share market for technology materials’ producers is rapidly becoming a sideshow. China seems today to be the only nation-state with both an existing industrial policy and the capital and command organization to carry it out. Like the Soviet Union before it the PRC plans its economy in five-year tranches. Also, like the Soviet Union before it the PRC sets higher production targets for goods and services with each successive five-year “plan.” But the PRC also measures the success of a five year plan by the increase in employment and improvement in the standard of living it brings about. The Soviet Union pretended that it was always at full employment. The planners of the PRC do not seem to follow this tradition.

The key to future wealth is the ownership and control of total supply chains for the production of technology materials. There are no short cuts.

In the western markets tumbling share prices and suspension of IPOs on news of temporary declines in demand or temporary oversupply are simply casino gambling, and if that is the best that the so-called free market can do then China will be the clear long term winner in the technology materials’ self-sufficiency stakes. In order to be a competitive economy it is necessary for a nation to have access to the natural resources it needs so that its economy can grow. The development of such resources can no longer be left to short term planning. It is necessary to commit both capital and intellectual capital to the long term development of adequate and sustainable production rates of natural resources. Base lines must be established for nations and the development of the resources necessary to maintain those baselines and allow for growth must be a priority of the nation’s markets.

This didn’t come about overnight. This situation has been building since the making of money for the sake of having more money eclipsed the making of money from increasing productive commerce

The economic cause of the transfer the world’s trading and manufacturing center from America to China has been American capitalism, which seeks the lowest cost for all resources, goods, and services in a system of as much global free trade as is compatible with minimizing national and international taxation, i.e. maximizing profit. American style free market capitalism does not believe in natural resource exhaustion except as a scare tactic to drive share or commodity prices. In fact it is the maximization of the rates of production of natural resources that is the problem from the point of view of the long term allocation of capital for most, non-energy, extractive industries.

Increasing the rate of production of extractive resources is capital intensive and time consuming, which means, of course, that it must be a low profit endeavor when ranked against speculation.

Twenty-five years ago when the transfer of labor intensive repetitive operations to low labor cost countries was begun in earnest the main driver for American industrialists was cost control as a method for the retention of market share in a very competitive market place then just beginning to feel downward price pressure from Asian, predominantly Japanese, imports. A second, no less important, driver at the time was the maintenance of the industrial company’s share price. This was in the era of blue-chip stocks, which were defined as those of the largest producers of raw materials, energy, or finished goods in an era when banks were service industries. Money was to be made through profit margins on goods and services. Banks were providers of the service of lending money to blue chips mainly for cash flow or working capital purposes. Investment “banks” took new ventures public and the partners in those banks had their own money at risk first of all.

The until now unnoticed political driver that allowed the transfer of low cost manufacturing to China, in particular, was the desire of the ruling communist party of the People’s Republic of China to use the situation (the desire of the capitalists for low cost labor) to literally force-start and then accelerate China’s development into a modern military-technological-industrial state. As Deng Xiaoping had put it succinctly the idea was to make China “strong and rich.” A version of capitalism was to be allowed albeit one with Chinese characteristics so that the nation could be put onto a path that would lead it to being able to provide its average citizen with the safety, health, and material well-being already achieved by the nations of the west of which the paragon is the USA. Of course this would come after or at the same time as China grew in strength to “resume” its natural place among nations.

On Friday, December 30, 2011 the Chinese government announced that China would put men on permanent duty in an orbital space station before 2020. Such an announcement in 2000 would have been considered “crackpot” at best. What a difference a decade of GDP growth at 10% per annum makes!

I have thought, and I have been trying to point out for many years now that apocalyptic theories of supply shortages and of subsequent rampant price inflation supposedly due to peak natural resources, i.e., the exhaustion of natural resources, are based on the type of reasoning that confuses the disease with the symptom. The disease is the financialization of capital, which means that the majority of investments made in the west today are completely detached from any relation to the production of commerce at all. Money is being used primarily for pure speculation. The purpose of such types of investments is solely to make more money. The confusion between wealth creation (jobs, goods, and services )for productive purposes and the simple making of money, for no other reason than to make more money, by the press, the politicians, and the ordinary citizen has masked this societally suicidal frenzy until it has now resulted in the downgrade of the American standard of living for the vast majority, and the placing on the path to extinction not only the contemporary middle-class but also the pathways to entering and remaining in that class.

The American governing classes have purposefully joined the financial elites and insulated themselves from this downgrade, which has now moved beyond their understanding. They have assigned the solution of the financialization crisis to those whose lack of interest in the well being of the nation is manifest, the bankers, who in fact brought on the American abandonment of wealth creation for productive purposes as a status game enshrined in the corrupted phrase, “Him who has the gold makes the rules.”

American industry literally taught the world how to build and equip workshops to economically mass produce consumer goods. The industry was financed by a capitalism, which counted success as the marketing of mass produced products made at the lowest cost that could be sold at a profit.

America’industrialists never worked under a national industrial policy, so that when the opportunity arose to lower costs simply by exchanging the American for a lower cost labor workforce there was no ethical barrier. The short term goal of maximizing profit was paramount. No one was concerned with the long term consequences of such a move to the workforce much less to the country as a whole.

Keep in mind that financiers backed the moving of millions of jobs to low cost labor countries while politicians never even gave a thought to the effect on the economy of the ensuing unemployed masses. As I recall we were told that “service” jobs here would replace those lost to low labor cost countries. It was never clear exactly what the economic pundits were defining as service jobs. We now realize that was because they didn’t know what they would be either.

So why should investors in natural resources care about the sad history of American corruption, greed, and sheer stupidity. It’s because one of the totally unforeseen long term consequences was the shift to Asia of the demand for not only the final assembly and the manufacturing of the parts necessary for such assembly, but ultimately of the TOTAL SUPPLY CHAIN BEGINNING WITH AND INCLUDING THE MINING AND REFINING OF THE MINERALS. This shift has meant the loss of not only the physical plant for total supply chains but the withering away by the attrition of non-use of the intellectual basis of such industrial processes.

The rare supply earth situation, which has been highlighted in the USA for the last few years, is just the tip of the iceberg the body of which is the loss or collapse of the capability to build or operate a total supply chain for a given critical material when the first steps of that supply chain have been moved off-shore.

Clueless and engineering-ignorant American environmentalists for whom mining and refining are simply evil incarnate have managed over the last generation to force re-election-only driven legislators to favor the closing of sites producing natural resources for energy and manufacturing and the imposing of regulations that make such production simply too time consuming as well as adding enormous costs .

The dwindling proportion of capital targeted to increasing productive capacity remaining in a system being squeezed dry of such capital by pure financial speculators seeking short term gain has now made it more productive to move entire supply chains off-shore to where the raw materials CAN being mined and refined rather than to waste capital on endless regulations and battles with the ignorant and suicidal (or ignorant and rich). The result has been at best to increase the cost of re-starting a supply chain and at worst to make it intellectually impossible if only domestic resources are to be utilized.

I note in passing that America’s most important remaining engine of wealth creation is its innovative high-tech industries. These industries, such as electronics and healthcare, have been responsible for more improvement in the standards of living and lifestyle of the peoples of the world than any other intellectual force in history. The American electronics, aerospace, and nuclear industries have held out off-shoring their research and development, but sadly they have only managed to do that by enticing the best of the Asian students to come and work in the USA.

For a generation this worked well, because such individuals for the most part preferred to stay in the USA to utilize their American honed and learned skills to enjoy a better life style than they could at “home.” And to have the opportunity to create their own businesses. Today that situation has changed as places like China and India have improved enough in opportunity-availability to entice their brightest and best to stay home or even to come home. The American mining and refining industry has also had its share of bringing skilled Asian workers and engineers to the USA from China and India and like the high tech manufacturing industries it has now seen the outflow of these same people with their American honed skills and technological improvements back to their “home” countries.” Asian engineers who specialize in mining and refining engineering are very unlikely to remain in an America that blocks them from opportunity at every step.

America’s greatest inherent advantage in the production of natural resources is based on

  1. The variety of items in which North America can be self-sufficient,
  2. The safety of American natural resource production, and
  3. The productivity of North American mining technology and personnel.

The hypocrisy and sheer stupidity of those who want to stop producing natural resources in North America, so that we can get them from places where civil liberties are frequently nonexistent, productivity is low, safety is poor, women are treated worse than domestic animals, and the standards of living are appalling is simply beyond understanding.

I think that January 1, 2012 is as good a date as any to focus on the fact that maintaining a steady flow of affordable raw materials for energy production, food production, and manufacturing all at prices we can afford, which will let our economy GROW without lowering our standard of living is now the imperative.

The problem is that while we are trying to maintain production levels and costs the BRICS are trying to increase the production of the same materials at a rate never before seen in history. It is unlikely that America can ever again be a major supplier of extractive resources to an export led domestic manufacturing industry. We have waited too long and have simply lost the will and the capability to restore that capacity.

We can however conserve capital and reduce debt by becoming self-sufficient in energy and by again being entirely self-sufficient in metals and minerals for our domestic needs. The demand for technology materials of all kinds is ultimately now and in the future to be driven by the BRICS as all of them struggle to build military-technology-industrial complexes. The USA cannot hope to supply the BRICS with structural metal ores or fabricated products, because we waited too long to get into the game. Our structural metal industries cannot now, and have been unable to, compete with those of China or India on price since at least the middle of the last decade. The move to financialization destroyed any hope of American financiers creating truly global metals and minerals giants such as Rio Tinto or BHP. However there is still time remaining for the USA to become a technology materials powerhouse for ourselves and for the world.

The USA and North America are rich in the extractive resources of the metals and minerals that are critical to mass producing high tech devices for all uses civilian and military. The USA and Canada combined currently also lead the world in mining and refining engineering as well as technological innovation. The USA, however, is entering upon the last decade during which it has a chance to return to self-sufficiency and innovative leadership in technology. Once these opportunities are gone the world will have passed us by, and the result will be the slow erosion of our standard of living and of any further opportunities for growth. Canada has been a patient partner, our largest supplier of natural resources, but Canada’s population cannot support the creation of enough capital to move North America into the position of the world’s premier and central supplier of technology materials.

Small investors need to take note that the first decade of the 21st century saw more change in both the movement and the composition of the world’s metals markets than any other comparable period in history. The changes are permanent and their cause is an irreversible and fundamental change in the geography of the global raw materials trade. The driving center of the trade is no longer in the west; it is today in east Asia.

I believe that you can safely relegate the bulk of twentieth century punditry and scholarship on the cycles of the production and prices of metals in peacetime to the scrap heap. There they join such ideas and common wisdom as “the end of history” and descriptions of China as a third-world or developing country. In 2011 as in the prior decade, China and the other “developing” countries of southeast Asia continued to grow their GDPs at a rate of at least 3, and as much as 4, times the pace of the US or Europe. And since their common target, not their target in common, is to develop technology-military-industrial economies with a per capita GDP at least equal to that of the pre-2008 USA the rapidly growing economies of the nations of south and east Asia, and soon, if not already, of Brazil are consuming, in an unprecedented accelerated timeframe, the same volumes of base metals, mainly for fixed infrastructure and for transportation, that the USA and Europe produced and consumed in the from the beginning of the age of steel, 1867, until now!

The strain this acceleration of and growth of demand has put on the world’s productive capacity for the ores of the base metals has now highlighted the differences among the base metals themselves by resolving them, by use, into the structural metals and the enabling structural metals. China alone today, in 2011, already uses 60% of all of the iron ore mined globally and 33% of the aluminum ore. Huge investments of capital in the ores of both of these base structural metals have been made outside of China solely for the purpose of supplying just China. Investors should note that unless the demand for base structural metals grows in the other BRICS-the resource rich and/or resource mega-demanding nations of Brazil, Russia, India, China and South Africa- China could create chaos in the world iron-ore market simply by increasing its domestic output to self-sufficiency, which is in fact possible, although not today economical. This game changing event, Chinese self-sufficiency in iron ore, which is actually predicted by Rio Tinto to take place by 2020, would, without a buildup in demand outside of China, throw global iron ore production into a vast oversupply status thus collapsing prices. By simply, albeit expensively, moving forward towards self-sufficiency China puts downward pressure on global iron ore prices. Strategic investors should now look for the most efficient low cost producers and fabricators of steel and aluminum outside of China, because the creation of a massive non-Chinese demand is absolutely necessary for the non-Chinese owned iron ore industry.

The ores of iron and aluminum are available in proven accessible deposits in great abundance. The proven resources of these ores are sufficient even at present global demand to sustain the global steel and aluminum industries for centuries. As long as energy is plentiful and relatively cheap the global production of steel and aluminum will continue, but continue to grow only through demand from the “developing” countries. Strategically I think that Russia is far from any meaningful development. I am looking at India and Brazil as demand drivers for iron and aluminum. Both are today self-sufficient in iron ore and both are world class exporters. Note well though that should either’s economy ever require the importing of iron or aluminum ore while at the same time Chinese demand were stable at today’s rate, or continued growing, there would then be a run-up in iron ore prices that would dwarf those of the last 10 years. In that case Australia would be the big winner. Australia’s demand for steel can never require more than a small fraction of its capacity to supply of iron ore. The unknown factor in all of this, in the long run, is China, which could become an exporter of iron ore in the 2020s.

Whatever commodity scenario one plots for the long term it is now always Asian demand that is critical. America’s future is tied to sophisticated supply chain developments for natural resources.

I personally do not believe that China will become an exporter anytime soon of iron ore, as a raw material, unless such action becomes necessary to maintain employment in the Chinese mining industry and then only after domestic demand is satisfied.

Additionally it should be noted by strategic investors that a China, self-sufficient, or in an ownership situation globally of resources to make itself self-sufficient, in iron ore, coking coal, limestone, bauxite, and cryolite could easily come to dominate the global supply of steel and aluminum.

It is ironic that monopoly capitalism with Chinese characteristics is the true threat to so-called free market capitalism, which considers monopoly capitalism to be counter-productive to the fair distribution of wealth because it concentrates wealth in too few hands and hands pricing power solely to the monopolist. Yet the Chinese have chosen state monopolized capitalism to ensure the distribution of the wealth created to the largest number of Chinese people. The Chinese system is as much a threat to western economic philosophy as it is a threat to western lifestyles and standards of living. The biggest problem is that even as production rate investments consume more and more western capital it is not at all clear that the prices for the materials so produced will be set by a free market. Thus such investments are high risk-in fact this is exactly the problem in the current rare earths production buildup. There has been almost no change in the geographic center of rare earth demand, China. This means that Chinese moves to regulate its environment, improve worker health, safety, and compensation, and to direct its economy away from being export led to being domestic consumer demand driven will be the drivers for rare earth pricing. When one takes into consideration Chinese moves into global finance are targeted so as to keep Chinese manufacturing competitive this means ultimately a convertible currency in which raw materials such as the rare earths are denominated.

So long as America is dominated by a Wall Street and Washington elite that believes that a man’s worth is measured by the capital he accumulates whether or not it is used productively to make products and create jobs there is no contest. China is winning

By: Jack Lifton
Source: http://www.raremetalblog.com/2012/01/2012-the-recognition-of-the-age-of-critical-technology-materials-the-following-essay-was-written-over-new-years-weekend.html

Alternative Metals to Gold and Silver

Rare Industrial Metal - Cobalt

The last decade has been a wonderful time for Gold Bugs and Silver Bugs. We have profited and protected our wealth against inflation. Gold has risen from around $250 per ounce in 2001 to a recent high of $1917.90 and silver has risen from around $5 per ounce in 2001 to a recent high of $49.81. These numbers are quite exciting for anyone involved in the precious metals markets. Being a Silver Bug myself, I have to admit the ride up has been rather erratic. Long ago I had to learn to ignore the daily Comex price of Silver. Gold and Silver will continue to be an important part of my future holdings, but going forward I am beginning diversification into other metals. Here is a brief overview of some of the rare industrial metals I like and why I believe they are a good choice for anyone who believes in holding physical metals as part of their asset strategy.

There are many who believe the world is in a recession and this may be true in the USA, EU, and other Western nations. There are a few of us who still believe that the speed of industry and commerce is accelerating. I have spent time in Africa, had an opportunity to live in Europe for a few years and I currently live in Panama. This experience has opened my eyes to what is happening outside of the USA. What I see is a great mass of people who were once walking now driving cars. These same people are talking on mobile phones, watching television on a flat screen, using their laptop at a cafe, getting better medical care, flying on vacations, living in modern homes and working jobs that require technology. This is happening across the planet! Can you imagine the impact on demand for rare industrial metals from countries of the BRIC, (Brazil, Russia, India, China), with the size of their populations? Like it or not commercialization was tested in the USA and was a huge success and now it has been exported worldwide. Here in Panama with a population of just over 3 Million we are adding 3000 automobiles a month to the roads. There are enough mobile phones in Panama to give every citizen 3 handsets. All of this takes a lot of natural resources and metals. Below are some of the important metals I would like to introduce to you.

Tantalum, the rare technical and industrial metal that gives technology the ability to be compact. Have you ever wondered why we no longer have to carry around mobile phones the size of a brick? The tantalum capacitor was a revolutionary invention for the world. Today you find tantalum in all of your personal electronics. Tantalum is now being used in in medical implants because it is non-toxic and does not react with body fluids. It is also used in jet aircraft as an alloying agent. Current worldwide production of tantalum is approximately 1160t annually. By 2030 just the demand is estimated to be 1410t. A few years back there was a lot of controversy surrounding tantalum because of its “Conflict Metal” tag. The metal was originally being mined in the Congo but most tantalum is mined in Australia, Brazil, and Canada.

Indium, how do you like that touch screen on your mobile phone? This rare technical and industrial metal has become a star among the elements recently. Indium’s uses in phones, computers, semi-conductors and televisions are well known. The one use that I would really like to highlight is in CIGS (copper-indium-gallium-selenide) thin film solar cells. These solar panels are the latest technology to hit the solar industry. Recently we have heard India, Japan, USA, Germany, Spain and many other countries announce huge solar initiatives. India alone signed into law a US $19 billion plan to produce 20 GW of solar power by 2020. Under the plan, the use of solar-powered equipment and applications would be made compulsory on all government buildings, as well as hospitals and hotels. This initiative alone will use up all the entire world’s production of solar cells. According to the USGS 84% of all indium production is currently used in solar cell production. Current worldwide production of Indium is approximately 600t per year. The future amount of indium required will depend greatly on the solar industry. Indium is mined in China, Canada, Bolivia and Japan.

Cobalt, have you driven a hybrid or electric vehicle lately? This rare technical and industrial metal is the one of the elements that makes the batteries in these cars possible. Cobalt is also used in pigments, super-alloys, non-corrosive medical implants, dental implants and jet engines. The top use today is as an alloy to make metals resistant to corrosion. The one I see real promise in is the use of hybrid and electric vehicle batteries. By 2012 the estimated sales of hybrid vehicles worldwide is approximately 2.2 Million and by 2015 to be at least 10% of the world auto market. Currently the biggest hurdle to these vehicles is the added cost and the ability to produce enough batteries to meet the demand. Cobalt has gained a lot of attention since the London Metal Exchange (LME) launched a cobalt contract in February 2010. Current worldwide production of cobalt is approximately 57,500t annually. The future is bright for cobalt. Every aircraft that goes in the air and every hybrid vehicle sold will put greater pressure on the supply of this metal. Cobalt is mined in Australia, Congo, Russia, Zambia and a few other countries.

These are just a few of the metals that our world needs to operate and the future is looking great for all commodities. I like the rare technical and industrial metals because of the tight supply and all of the wonderful uses for them. The mining of these metals is often a by-product of base metal like copper, lead and zinc. Most of the large deposits have been found and are in production. This translates into a very tight supply for the future and profits for investors. Silver and Gold have been my metals of choice for many years, but I see great opportunity for the person who is adventurous and willing to add another asset to their portfolio before the masses catch on.

By: Randy Hilarski - The Rare Metals Guy
Source: http://www.buyrareearthmetalschinaprices.com

German Newspaper Talks About Industrial Metals

Translation from an article in the German Financial Times:

Most people are not aware of the demand and value of rare metals. For more information regarding these metals, their uses, and their values, Haines and Maassen, one of just a few traders, will be able to provide you with any needed information.

Scandium, Lanthanum, Ytterbium. These words are foreign to most people but amongst people in the know, they are words which cause a lot of excitement today. These are metals rare and otherwise which are starting to become scarce. These scarcities are a real threat to many industrial countries, because these metals are used for important current and future technologies such as batteries for electric cars, aircraft turbines, solar panels or TV and PC screens

Many rare metals are currently produced in countries with complicated political environments. Countries like Russia, Brazil, Congo and China. China produces over 90% of the rare metals in the world today. The problem is that China covets these metals as much as any one and is currently drastically reducing their export levels to other industrial countries in need of these metals. At this particular time, because of scarity, there are 14 metals that are considered rare.

An Established Network

Even before China’s export restrictions it was not easy to get these commodities. Although there is a stock exchange in Shanghai, foreigners are not allowed to buy rare metals there. In a village close to Bonn, Germany, is an inconspicuous looking warehouse of a family-owned business called Haines & Maassen. In this warehouse many coveted commodities can be found. The five-meter-high shelves accommodate approximately 850 different metals in boxes, barrels, glass containers or bags. In one of the lower compartments are eleven barrels, 50 inches high and wide containing the metal, Hafnium.

According to the owners, “Gunther Maassen stores about 5 percent of the annual global production of Hafnium in their warehouse.”

Long-standing relationships benefit the company

For the last 40 years, the 77 year old father and patriarch of the family-owned buisness visits the London Metal Exchange every year even when there are no coveted and rare earth metals being traded. His sons regularly travel the world in order to maintain contacts and establish new ones. The family has a particularly good relationship with the Chinese, from which the company gets a little more than half of its stock of raw materials. The Maassens are currently benefitting from long-standing well-established, nurtured buisness relationship

The warehouse is not large but contains a fortune in metals.

More than 60 years ago the father of this family started in the metal business, and today both of his sons help run the company. Their specialty is the niche product of rare metals. “The important factor is that we built an established network, that allows us to bring the few producers and consumers together,” said Maassen. In the case of Hafnium there only three large manufacturers in the world and one of those is currently not in production.

Long-standing relationships benefit the company

For the last 40 years, the 77 year old father and patriarch of the family-owned buisness visits the London Metal Exchange every year even when there are no coveted and rare earth metals being traded. His sons regularly travel the world in order to maintain contacts and establish new ones. The family has a particularly good relationship with the Chinese, from which the company gets a little more than half of its stock of raw materials. The Maassens are currently benefitting from long-standing well-established, nurtured buisness relationships.

Deliverys are made to research institutions, industry and investors.

Bildunterschrift:
Thanks to their good name, they are also praised by foreign companies which wish to sell their metals. And even if someone is looking for a very specific commodity, it is Maassen’s pleasure to help. “We have a gentleman sitting in China, acting as a scout who recieves directions from us,” said Maassen. “He is highly-effective and instrumental in providing us with new clients and new contacts. “

Rare earth metals as an investment

Special requests come mostly from research institutes. As a matter of fact, eighty percent of the Haines and Maassen contracts, are with research institutes. But the family business sells the bulk of their metals to industry as research institutes only require small quantities.

Most recently, buisnesses and individuals outside of industry are beginning to buy substantial quantities of rare metals as a tangible asset used to combat the negative effects of inflation and the devaluing of currency.

It was because of this increasing scarcity within the commodity markets that the Maassen’s decided to bring the investors and the industry together, “In four or five years at the peak of the shortage if reached, the investors will be able to provide those materials to the industry. In return, the industry could contribute to the storage costs and receive advance rights for those rare metals.” , said Maassen.

A family that appreciates minerals

Apart from all his business activities Gunther Maassen is also a big fan of metals and rare products. He has collected large blocks of different materials, which are worth a fortune as they come directly from the the mines. If you visit Maassen it is not unusual to get a piece of a meteor placed in your hands to be surprised with its heavy weight. “We also have a deep-sea manganese nodule. That is the material which is in small chunks at three to four thousand meters depth on the ocean floor,” according to Gunther.

This enthusiasm for rare metals has spread to his sons who subsequently joined the company. The Maassen’s would never sell these particular pieces but they do lend them for exhibitions on occasions. These are family treasures to be passed down from generation to generation in the years to come.

Author: Insa Wrede
Editor: Rolf Wenkel

China Will Continue to Dominate the Rare Earths Market in 2011

Editor’s Note: Prices for many precious and base metals hit record highs in 2010, as economic uncertainty rattled around the globe. What does 2011 hold for gold, silver, platinum, palladium, copper and other metals? Kitco News reporters have prepared a series of stories which examine what is in store for 2011, not only for metals but for currencies, stocks and the overall economy. These stories will be posted on Kitco.com during the holiday period and also will be featured in a special section. Stay tuned for video highlights as well.

(Kitco News) - China’s dominance of global rare earths output will continue in 2011, yet at the same time other nations are starting to make preparations to pull more metal from the ground and reduce China’s stranglehold on the market in future years.

Until the last few months, the mention of rare earth metals likely would elicit a blank stare unless the conversation involved someone in a specific sector that uses the elements.

Rare earth metals, known as REEs, burst into the mainstream media limelight during the past several months, with articles in The New York Times, The Wall Street Journal, the Financial Times, on major wire services and televised segments on CNBC. The big exposure came with a flap that developed when China, which controls 95% to 97% of the current REE global output, stopped exporting to the Japanese.

Fears continue over the supply of rare earth metals, which consist of 17 elements used in creating a variety of consumer, environmental and industrial-driven technological products. Despite some movement expected in 2011 and beyond to develop greater supply from other global sources, the Chinese still hold the shovel.

“They have the ability to dictate the market if they want to,” said Charl Malan, senior metals and mining analyst at Van Eck Global. The company offers a number of metals-related investments and this fall started the first U.S.-listed exchange-traded fund for equities of companies involved with producing, refining and recycling rare earth/strategic metals.

“With rare earths growth in the next five years about 225,000 tons, that’s about 9% (year-on-year) growth number,” Malan said. “Currently, supply is about 125,000 tons, out of which China produces about 120,000 tons.”

Major importers have come to depend on China due to its ability to manufacture REEs at a reasonable cost. The embargo China placed on exports to Japan has been devastating to the Japanese and shows the strength of the REE demand China commands. Japan was the leading importer of REEs.

“News out of China is a big part of it,” said The Mercenary Geologist Mickey Fulp. “It is a purely speculative sector. As news comes out of China about export quotas, relaxing export quotas or news of any kind on that regard supply and demand fundamentals of the rare earth elements sector is going to affect prices.”

Fulp said China controls well over 90% of the current supply. The dominance is mainly because the Chinese have developed the ability to manufacture these minerals in such a way that the rest of the world could be falling behind quickly, not because rare earth metals are really that rare.

“For me, if I look at the bigger picture for rare earths, this is what’s essential,” Malan of Van Eck said. “There’s an abundance of rare earths around the world. It’s not so much the mining, it’s the fact we don’t have the manufacturing capacity and we don’t have the skill sets or the equipment. That’s my biggest concern.”

Malan believes that China has invested its resources in such a way that it is now properly positioned for the future in terms of manufacturing capacity, but more importantly, well placed from a knowledge standpoint.

“To have the refined product really work, you obviously need very highly educated, highly skilled people specifically within an industry,” Malan said. “There’s something like 800 people with Ph.D.s specifically linked to rare earths. They don’t just focus on the equipment, the processing and the manufacturing side of it but also the manpower and the knowledge base behind it.”

A half century ago China was not among the leading producers of REEs. Between 1950 and 1980, the U.S., India, South Africa and Brazil were considered to be the front-runners in production. During the 1980s, China began underselling competitors, leading to consumers purchasing cheap supply from the Chinese.

This had a negative effect on REE mines in several countries, leading to most being shut down. Molycorp Minerals mine in California was once the largest REE producer in the world but was forced to close in 2002. The mine is set to reopen in 2011 and should begin contributing production by 2012.
“In 2012, there will be additional supply from Molycorp which will be 20,000 (metric) tons,” said Marino G. Pieterse, publisher and editor of Gold Letter International, Uranium Letter International and Rare Earths Elements International.
Molycorp is not the only rare earths company beginning REE production in the next few years.
“In 2013 you’ll have three other companies that will begin producing REEs,” Pieterse said. “Frontier Rare Earths will produce 10-20,000 (metric) tons, Greenland Minerals and Earths LTD will have 40,000 (metric) tons and then there’s Rare Elements Resources LTD, which will have 20,000 (metric) tons.”
Lynas Corporation in Australia is also slated to begin REE production, with tonnage reaching over 20,000.
Analysts said that the move towards wider production could mean there will be an over-supply of REEs by 2014-2015, which will bring stability to prices.
Despite the title of being rare, REEs are in abundance. With countries other than China developing the means to manufacture these metals coupled with the need to introduce and maintain greener technologies, REEs are expected to perform well in the coming years.
“I see bigger and better things for the entire sector,” Fulp said.
——
Scandium
Aluminum alloy: aerospace
Yttrium
Phosphors, ceramics, lasers
Lanthanum
Re-chargeable batteries
Cerium
Batteries, catalysts, glass polishing
Praseodymium
Magnets, glass colorant
Neodymium
Magnets, lasers, glass
Promethium
Nuclear batteries
Samarium
Magnets, lasers, lighting
Europium
TV color phosphors: red
Gadolinium
Superconductors, magnets
Terbium
Phosphors: green, fluorescent lights
Dysprosium
Magnets, lasers
Holmium
Lasers
Erbium
Lasers, vanadium steel
Thulium
X-ray source, ceramics
Yterrbium
Infrared lasers, high reactive glass
Lutetium
Catalyst, PET scanners

U.S. Inflation Set to Soar as the Country’s Chief Export Boomerangs

January 13, 2011
By Martin Hutchinson, Contributing Editor, Money Morning

While prices for food and energy have been rising, inflation in the United States has remained relatively subdued.

One common explanation for that phenomenon is that U.S. inflation has been “exported” to China and elsewhere through the U.S. Federal Reserve’s monetary policy. And given the perennial U.S. balance of payments deficit, it’s good to know the country has found something it can successfully export!

However, the bad news here is that inflation does not stay exported - and in 2011 it may boomerang back to make life on Main Street miserable.

Thankfully, there are precautions we can take to combat higher prices and preserve our wealth.

U.S. monetary policy has involved excessive money creation since 1995, fueling asset bubble after asset bubble. However, it has not produced inflation in the United States because the dollar is a reserve currency, so excess dollars flow to countries whose economies are more vulnerable to inflationary pressures.

In the 1990s, the excess dollars flowed to Argentina, whose currency was pegged to the dollar. The imported inflation wrecked Argentina’s sound policies of that decade and contributed to a debt-fueled collapse in 2001. Since 2008, the excess money has gone to China, India, Brazil and other fast-growing emerging markets. It also has fueled a massive growth in foreign exchange reserves among the world’s central banks. Central bank holdings of forex reserve have grown more than 16% per annum since 1998.

China, India, and Brazil all currently have massive inflation problems. China, which has increased its inflation by holding down its currency against the dollar, has been very proactive in tackling inflation as of late. The People’s Bank of China (PBOC) surprised the markets on Christmas Day by raising its one-year refinancing rate by 52 basis points to 3.85% and increasing the benchmark deposit rate by 25 basis points to 2.75%.

The PBOC has increased bank reserve requirements five times in the past year and raised interest rates twice - albeit by a scant 0.25% each time.

China’s official inflation rate currently is 5.1%, up from 1.5% at the beginning of 2010, but its figures are suspect. The PBOC probably will have to raise its benchmark rate several more times from its current level of 5.81% before it’s able to bring inflation under control.

India’s inflation is about 7.5%, but is expected to rise further since food prices are surging at double-digit rates. Prices for onions, for instance, are up 33% from last year. The Reserve Bank of India (RBI) is again raising interest rates, now at 6.25%. But, as in China, sloppiness in official inflation statistics means Indian interest rates are negative in real terms and the RBI will have to continue raising rates if it wants to control inflation.

Brazilian inflation was 5.91% in December and is rising fast. Newly elected President Dilma Rousseff fired the central bank chief and is trying to bring interest rates down from their current level of 10.75%. Again, inflation seems likely to surge in the near term.

To complete the BRIC (Brazil, Russia, India, and China) picture, Russian inflation is currently running at 8.8%. That’s down from a year ago, but still much higher than the Russian government would like it to be.

With inflation rising in all four BRIC countries and many other emerging markets, the U.S. holiday from inflation cannot last much longer. The Fed’s second round of quantitative easing (QE2), which included purchases of $600 billion in Treasury bonds before July, and the December package of tax cuts are also fueling inflationary forces.

Money growth, which had been low in 2009 after the burst in late 2008, has once again risen to worrying levels. Over the last four months, the average growth rates of broad money on the Federal Reserve Bank of St. Louis’ Money of Zero Maturity and M2 Money Stock measures were up 10% and 7%, respectively. That’s comparable to their growth in the 1970s.

Furthermore, oil prices are approaching $100 per barrel, and other commodity prices are strong, as well. So however successful the Fed has been in exporting inflation since 2008, its success won’t last for much longer. At some point in 2011, inflation will be re-imported - and probably with a roar rather than a whisper.

When that happens, the Fed will have to raise interest rates to fight rising prices. Of course, Federal Reserve Chairman Ben Bernanke will almost certainly resist this inevitability, fudging figures and producing spurious arguments to avoid making the right decision. When the Fed does eventually raise rates, it will do so grudgingly - as it did during the period from 2004 to 2007.

That means higher short-term interest rates probably won’t arrive until 2012, and higher long-term rates could potentially be delayed by more quantitative easing. The result will be an unholy mess that takes the form of surging inflation in 2011 and a second recessionary “dip” in 2012.

Gold and other commodities will continue to offer protection against the surge in inflation in 2011, as they have in the last few years. At some point, though, the market will start to anticipate tighter Fed policy and gold and other commodities prices will collapse.

Still, in 1979-80, gold and commodities prices went on rising for more than three months following then-Federal Reserve Chairman Paul Volcker’s famous 1979 “October surprise,” in which he pushed up the Federal Funds rate by two full percentage points over a weekend.

If the gold and commodities markets didn’t believe the obviously serious Volcker would stop inflation until several months after he took decisive action, they certainly won’t have confidence in the actions taken by a reticent Ben Bernanke. So your gold and commodities investments will probably be pretty safe even if the Fed does eventually start raising rates. Certainly they are a good bet for now. More importantly, they will protect you against the pending surge in inflation.

Emerging Market Stocks Fall Second Day on China, India Inflation Concerns

By Jason Webb and Saeromi Shin - Jan 6, 2011 9:52 AM PT

Emerging market stocks fell for a second day on concern that China and India may raise interest rates and Brazil’€™s real weakened as the central bank set reserve requirements for short positions in U.S. dollars.

The MSCI Emerging Markets Index traded 0.2 percent lower at 1,158.94 as of 8:57 a.m. in New York. Benchmark stock indexes in China and India fell at least 0.5 percent. Brazil’s Bovespa stock index fell 0.3 percent, and the real weakened 0.5 percent. Turkey’€™s ISE 100 National Index rose 0.5 percent after the government sold $1 billion of 30 year bonds at what the Ankara- based Treasury said was the lowest ever interest rate for that maturity.

Escalating inflation in China and India may prompt officials to curb expansion by lifting interest rates, slowing growth in emerging-market assets. China’s central bank Governor Zhou Xiaochuan said yesterday that inflation pressures in China were rising, in part due to monetary easing in the U.S. and other major economies. India may need to continue raising interest rates to combat price increases, the International Monetary Fund’€™s mission chief to the country said yesterday.

€œIt’€™s inevitable that we’€™ll see interest rates rise,€ Hugh Young, Singapore-based managing director of Aberdeen Asset Management Asia Ltd., said in an interview with Bloomberg Television today. €œIf currencies and interest rates remain where they are today inflation could easily turn into a nightmare.

The Federal Reserve announced plans on Nov. 3 to buy $600 billion of bonds, leading to concern that U.S. liquidity was pushing up inflation in countries such as China. The policy known as “quantitative easing€ is designed to stimulate the world’€™s biggest economy.

Jobless Claims

U.S. initial jobless claims rose to 409,000 in the week ended Jan. 1 from 388,000 the previous week, according to Labor Department figures. That was in line with the median forecast of economists surveyed by Bloomberg.

The real weakened for a third day. The new reserve requirement has a potential to reduce short positions in the dollar to $10 billion from $16.8 billion in December as banks seek to avoid paying reserve requirements on currency operations, Aldo Mendes, the central bank’s director of monetary policy told reporters in Brasilia.

The Shanghai Composite Index declined 0.5 percent.

Ping An fell more than 4 percent in Shanghai after Citic Securities Co. said China’€™s second-biggest insurer may need to raise as much as 40 billion yuan ($6 billion). Citic, the largest brokerage, said the fundraising may cut earnings per- share by up to 15 percent.

Market Speculation

Ping An spokesman Sheng Ruisheng said the insurer won’€™t comment on “market speculation€ and that it has “nothing to disclose.€ The company in October reported third-quarter profit dropped 26 percent due to greater reserves, missing analyst estimates.

India’€™s Bombay Stock Exchange Sensitive Index fell 0.6 percent after the IMF comments. State Bank of India, the nation’€™s largest lender, declined 2.7 percent.

Indonesia’s Jakarta Composite index lost 1.3 percent, the most in Asia, after the central bank kept borrowing costs unchanged yesterday for a 17th meeting.

Turkiye Garanti Bankasi AS, Turkey’€™s biggest bank by market capitalization, rose 0.5 percent in Istanbul. Akbank TAS, the second-largest bank, advanced 0.5 percent.

The Turkish government sold $1 billion in debt maturing Jan. 14, 2041 at a yield to investors of 6.25 percent, the Ankara-based Treasury said in a statement on its website today.

Fundamentals

The issue is reported to have been five times oversubscribed, a reflection of generally constructive investor perceptions of Turkey’€™s fundamentals and also prospects for ratings upgrades,€ Timothy Ash, head of emerging-market research at Royal Bank of Scotland Group Plc, said in a report.

South Africa’€™s rand weakened 0.9 percent against the dollar. The price of gold, which with platinum accounts for about a fifth of the country’€™s exports, fell for a fourth day in London.

The South Korean won rose 0.5 percent against the dollar.

The difference between the yields investors demand to hold emerging-market debt over U.S. Treasuries widened 1 basis point to 2.23 percentage points, according to the JPMorgan Chase & Co. EMBI+ index.

To contact the reporters on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net. Ian C. Sayson in Manila at isayson@bloomberg.net

To contact the editor responsible for this story: Reinie Booysen at rbooysen@bloomberg.net