China

China, 14 Currency Swap Agreements and Counting

Since the financial crisis of 2008 China has been signing agreement after agreement with other sovereign nations for bilateral currency swaps. China and these other nations are trying to diversify their central bank foreign - exchange reserves out of U.S. Dollars. China would like its currency, the Renmimbi, to play more of an important role in the world financial system. Here is a list of the fourteen nations that have already signed bilateral currency swap agreements with China.

  • Pakistan
  • Argentina
  • South Korea
  • Indonesia
  • New Zealand
  • Malaysia
  • Belarus
  • Hong Kong
  • Japan
  • Uzbekistan
  • Thailand
  • Turkey
  • Singapore
  • Kazakhstan

After the collapse in 2008 Chinese exporters were finding it difficult to do international trade as they were unable to settle their deals with Yuan (Renmimbi) and were forced to settle in Dollars. The currency swap agreements will make it easier for now for international companies and traders to receive financing in Yuan during difficult economic periods. If they can settle their deals in Yuan (Renmimbi) it would reduce their risk. China and these nations would like to keep trade flowing even in the event of another financial crisis.

What is a Currency Swap? Essentially a currency swap is a transaction between two nations to exchange the interest and principal payments on loans issued by two different nations. The two countries gain access to foreign exchange reserves. This limits the nations exposure to exchange rate fluctuations because they can pay back the liability associated with its currency instead of in Dollars.

Why is China so concerned about the U.S. Dollar? China has grown suspicious of the US government unwillingness to curb its spending and printing of its currency. This runaway printing has and will continue to devalue it dollar-denominated assets. Recently we are hearing that the US Federal Reserve will quietly implement QE3 (Quantitative Easing 3).

China would like the world to look upon its currency as a store of value similar to Gold and the Dollar. This privilege has given the US the ability to expand and borrow. China would also like this ability. If nations hold reserves in Yuan (Renmimbi) it is extending credit to the Chinese government. These currency swaps are the first steps in Yuan (Renmimbi) transforming in to a global currency. How many more countries will sign agreements with China in 2012? How will the USA and the IMF react? I look forward to seeing the results of China spreading its influence.

Randy Hilarski - The Rare Metals Rare Earth and Rare Industrial Metals Specialist
Web: www.swissmetalassets.com

China, Japan, South Korea, ASEAN Agree on Wider Currency Swap Arrangements

Republic of China

ISTANBUL, May 4 (AFP) - Finance ministers from China, Japan, South Korea and the Association of Southeast Asian Nations (ASEAN) agreed Wednesday to expand their system of bilateral currency swaps under the Chiang Mai Initiative to a more multilateral system. The ministers, meeting as the “ASEAN-plus-3″ on the sidelines of the Asian Development Bank (ADB) annual meeting in Istanbul, said this would make the Chiang Mai Initiative a “more effective and disciplined framework.” Under the currency swaps, an Asian country hit by a foreign exchange crisis like the one in 1997 could borrow borrow foreign currency — usually US dollars — from another country to bolster its reserves until the crisis had passed. An ADB analyst remarked that Wednesday’s accord was a step towards setting up an “Asian Monetary Fund,” although such an institution might never actually be created.

In a joint press conference, the 1O ASEAN and three East Asian financial ministers also called for a review of the quota of Asian countries in the International Monetary Fund (IMF) “to properly reflect the current realities and their relative positions in the world economy.” The 13 ministers said an economic surveillance system would be put into place along with the Chiang Mai Initiative framework, to detect irregularities early and apply swift remedies. They also said a collective decision-making mechanism would oversee the current system of bilateral swap arrangements “as a first step towards multilateralization.”

This would make it easier to activate the bilateral swap arrangements in case of an emergency, the ministers said in a joint statement read after their three-hour meeting. Crisis-hit countries would also be able to draw down as much as 20 percent of the money under the bilateral swap arrangements without having to go through the IMF. Under the current arrangements, countries that draw more than 10 percent under their swap arrangements must have an IMF-supported program in place. The decisions of the ASEAN-plus-3 group apparently followed recommendations made during a meeting of the Chinese, Japanese and South Korean ministers a day earlier. Previously, the initiative launched in Chiang Mai, Thailand, in May 2000 involved only bilateral swaps but the Chinese, Japanese and South Korean ministers said they would look towards expanding this into multilateral swaps involving three or four countries. Asian countries had earlier proposed the creation of an Asian Monetary Fund after the 1997 fiscal crisis but the United States and the IMF had strongly opposed this. Chinese minister Renqing Jin said his country had already agreed to “double the scale of its currency swap,” from its current level.

However, when asked if they were setting up an Asian Monetary Fund, Japanese minister Sadakazu Tanigaki replied, “only the Chiang Mai Initiative was discussed”. The ministers said the initiative had been very helpful in maintaining the financial stability of Asian countries even if there had been no repeat of the 1997 crisis. Masahiro Kawai, special adviser to the ADB president, who monitored the ASEAN-plus-3 meeting, said the ministers wanted to increase the effectiveness of the Chiang Mai Initiative which now covers 16 bilateral swap arrangements. He called it a “step towards multilateralization,” adding that a “de facto Asian Monetary Fund,” may eventually be created. He said the United States and the IMF had opposed such a fund in the past partly due to fears it would increase the risk of moral hazard. But Kawai said this was why the ministers wanted to increase the surveillance function of the Chiang Mai Initiative. He remarked that in the past, China had not joined the move to create an Asian Monetary Fund and that if it joined with the other Asian countries, they might be more successful. mm/wai

Source: http://www.asean.org/afp/113.htm

Global Tungsten Shortage Looming

Tungsten is an essential component in many industrial applications including drilling & cutting tools, electronics and specialist steels. The European Union categorises tungsten as a “critical raw material”. China currently produces 85% of the world’s tungsten but their factories are ravenous consumers and China is a net importer. USA, Europe and Japan consume 55% of world tungsten, but produce only ~5%. It should be no surprise that tungsten prices have surged in the last year, while many other commodities have experienced price decline. Image Link: http://www.metalinvestmentnews.com/wp-content/uploads/2011/12/PLY1-Dec.jpg Tungsten is currently selling for $20 a pound. New growth markets include nickel-tungsten alloys which can substitute for gold-nickel plating.

Playfair’s tungsten properties contain an estimated 100 million pounds of 43-101 compliant tungsten, and significant additional historical resources. These resources have potential for expansion.

Tungsten is a low profile commodity. There is no tungsten ETF, and few pure plays. Outside of China only two publicly traded companies currently produce tungsten: Malaga (MLG-TSX) and North American Tungsten (NTC-TSX). With four high-grade Tungsten deposits, Playfair Mining (PLY-TSX) is highly leveraged to rising prices and looming tungsten shortages. Image Link: http://www.metalinvestmentnews.com/wp-content/uploads/2011/12/PLY2-Dec.jpg

“We feel very fortunate to have 4 high grade tungsten deposits at a time when the price of tungsten has started to move sharply higher,” states Don Moore, Playfair CEO, “We acquired these projects when tungsten prices were depressed. China has an ironclad grip on the market. It’s not surprising that we are starting to see some serious interest from large tungsten end-users who need to get stable supply from outside of China.” Image Link: http://www.metalinvestmentnews.com/wp-content/uploads/2011/12/PLY3-Dec.jpg Tungsten is an essential industrial product but typically insignificant on a cost basis. Like the salt in a bag of potato chips - the price of salt could triple and the bag of chips would only increase a penny. But you can’t sell chips without salt. So with China slurping up most of the global supply - tungsten could see dramatic price increases with little demand destruction. Playfair’s veteran team of Donald G. Moore, Neil Briggs is augmented by Director James Robertson who was a principal in Primary Metals, a tungsten producer taken out by Japanese giant, Sojitz Inc.Judging from public statements by Playfair’s management, the strategy may well be to partner with a tungsten end user to help finance the project into production.

Image Link: http://www.metalinvestmentnews.com/wp-content/uploads/2011/12/PLY4-Dec.jpg

In addition to the compliant resources at Grey River (16.2m lbs) and Risby (89.4m lbs), Playfair has historical resources of 18.5m lbs at Lened and 5.3m lbs at Clea. Four high grade Canadian deposits: Grey River representing near term production potential, Risby offering massive size potential and all offering room for exploration upside.

Grey River, located on the south coast of Newfoundland, consists of nine mineral claims covering 1,750 hectares. The Grey River tungsten veins are typical fluorite-rich wolframite-quartz greisen vein deposits. A 1984 GSC Economic Geology Report lists the Grey River deposits as “one of the largest typical wolframite deposits in Canada” and states “It would be remarkable if there were not many more tungsten occurrences’ [on the property].” The Grey River deposit sits at tidewater in an ice free, deep water Atlantic port that offers year round shipping.

Risby is an advanced stage deposit in the Yukon accessible by a 25 km tractor road from an all-weather highway. The property is located approximately 55 kilometres west of Ross River and is comprised of 38 quartz mineral claims, all 100% owned by Playfair Mining.

The property was worked on from 1968 to 1982 by the Caltor Syndicate and Hudson Bay Exploration and Development Co. Ltd. Together their exploration efforts include 48 diamond drill holes (7,057 metres), geological mapping, trenching, stream sediment sampling and ground geophysics (magnetometer and EM surveys). Recent work by Playfair includes diamond drilling, resource expansion and a NI 43-101 compliant inferred resource calculation of 8,537,000 tonnes of 0.475% WO3 at a 0.2% cut-off.

Despite surging tungsten prices, Playfair has been hit hard by tax loss selling is currently trading close to all-time lows at $.07. It has a market cap of $5.4 million. The British Geological Survey (BGS) has tungsten #4 on its “Risk List” stating that it is critically vulnerable to supply disruption. With 122 million fully diluted shares and 100 million pounds of 43-101 compliant tungsten on the books - worth about $2 billion at current prices - Playfair is definitely worth a closer look.

Source: Metal Investment News

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

Rare earth crisis: Innovate, or be crushed by China

Laptops, cars, smartphones, TVs, MRI scanners, LCD displays, light bulbs, optical networks, jet engines, cameras, headphones, nuclear reactors. It might seem like a random selection of high-tech gizmos, but every single object on that list has one very important thing in common: Their manufacture requires one or more rare earth metals.

Rare earths — a block of seventeen elements in the middle of the Periodic Table — aren’t actually all that rare, but they tend to be very hard to obtain commercially. Generally, rare earth elements are only found in minute quantities in mineral deposits of clay, sand, and rock (earths!), which must then be processed to extract the rare metals — an expensive process, and also costly for the environment as billions of tons of ore must be mined and refined to yield just a few tons of usable rare earths.

Many rare earths are also geochemically rare — they can only be mined in a handful of countries. This is simply down to Mother Nature being a tempestuous so-and-so: Some countries have deposits of rare earths, and some don’t. This results in massively skewed production (China famously produces 97% of the world’s rare earth metals), and, as you can imagine, a lot of national security and geopolitical troubles, too.

It doesn’t stop with rare earths, either: Many other important elements, such as platinum, are only available from one or two mines in the entire world. If South Africa sustained a huge earthquake — or was on the receiving end of a thermonuclear bomb, perhaps — the world’s supply of platinum would literally dry up over night. The continued existence of technologies that rely on platinum, like car exhaust catalytic converters and fuel cells, would be unlikely.

If geochemistry and politics weren’t enough, though, we even have to factor in ethical concerns: Just like blood/conflict diamonds — diamonds that originate from war-torn African nations, where forced labor is used and the proceeds go towards buying more weapons for the warlord — some rare metals could be considered “blood metals.” Tantalum, an element that’s used to make the capacitors found in almost every modern computer, is extracted from coltan — and the world’s second largest producer of coltan is the Democratic Republic of the Congo, the home of the bloodiest wars since World War II. Not only do the proceeds from coltan exports get spent on weapons, but the main focus of the wars were the stretches of land rich in diamonds and coltan.

Also along the same humanist vein, it’s important to note that extracting these rare elements is usually a very expensive and disruptive activity. Indium, probably the single most important element for the manufacture of LCDs and touchscreens, is recovered in minute quantities as a byproduct of zinc extraction. You can’t just set up an indium plant; you have to produce zinc in huge quantities, find buyers and arrange transport for that zinc, and then go to town on producing indium. In short, extracting rare elements is generally a very intensive task that is likely to disrupt or destroy existing settlements and businesses.

The rare earth apocalypse

The doomsday event that everyone is praying will never come to pass, but which every Western nation is currently planning for, is the eventual cut-off of Chinese rare earth exports. Last year, 97% of the world’s rare earth metals were produced in China — but over the last few years, the Chinese government has been shutting down mines, ostensibly to save what resources it has, and also reducing the amount of rare earth that can be exported. Last year, China produced some 130,000 tons of rare earths, but export restrictions meant that only 35,000 tons were sent to other countries. As a result, demand outside China now outstrips supply by some 40,000 tons per year, and — as expected — many countries are now stockpiling the reserves that they have.

Almost every Western country is now digging around in their backyard for rare earth-rich mud and sand, but it’ll probably be too little too late — and anyway, due to geochemistry, there’s no guarantee that explorers and assayers will find what they’re looking for. The price of rare earths are already going up, and so are the non-Chinese-made gadgets and gizmos that use them. Exacerbating the issue yet further, as technology grows more advanced, our reliance on the strange and magical properties of rare earths increases — and China, with the world’s largest workforce and a fire hose of rare earths, is perfectly poised to become the only real producer of solar power photovoltaic cells, computer chips, and more.

In short, China has the world by the short hairs, and when combined with a hotting-up cyber front, it’s not hard to see how this situation might devolve into World War III. The alternate, ecological point of view, is that we’re simply living beyond the planet’s means. Either way, strategic and logistic planning to make the most of scarce metals and minerals is now one of the most important tasks that face governments and corporations. Even if large rare earth deposits are found soon, or we start recycling our gadgets in a big way, the only real solution is to somehow lessen our reliance on a finite resource. Just like oil and energy, this will probably require drastic technological leaps. Instead of reducing the amount of tantalum used in capacitors, or indium in LCD displays, we will probably have to discover completely different ways of storing energy or displaying images. My money’s on graphene.

By Sebastian Anthony
Source: http://www.extremetech.com/extreme/111029-rare-earth-crisis-innovate-or-be-crushed-by-china

Battle lines drawn in gold price direction predictions

Precious Metal Gold

While some headlines are predicting the end of the bull market for gold, many commentators remain bullish on the yellow metal and all agree that more volatility should be expected.

GRONINGEN -

As gold prices plunged as much as 3.5% in trade yesterday, permabear and economist, Nouriel Roubini, was engaging in some gold bull baiting on Twitter.

“Gold at a 7 weeks [sic] low down to 1635. Where is 2000 gold dear gold bugs?” He said, and, later in the day, “Gold bugs in hiding as gold prices plunge.”

At roughly the same time gold mining entrepreneur Rob McEwen in a talk to the Geological Society of Nevada, stood firm on his prediction that gold prices would hit $5,000 over the long term

McEwen and Roubini represent polar opposite visions of the metal that are long held and well reported on and so their sticking to their guns came as little surprise. More noteworthy in the context of the second-worst rout in the metal since the 2008 financial crisis were the recent comments by author and economist, Dennis Gartman.

In his most recent letter, Gartman was quoted by Bloomberg as writing, ” “Since the early autumn here in the Northern Hemisphere gold has failed to make a new high. Each high has been progressively lower than the previous high, and now we’ve confirmation that the new interim low is lower than the previous low. We have the beginnings of a real bear market, and the death of a bull.”

He went on to add that while buying in China rose significantly in October, the news of the surge failed to move markets, “Buying of that sort should have sent gold prices soaring,” Gartman wrote. “One of the oldest rules of trading is simply this: a market that cannot or does not respond to bullish news is a bearish market not a bullish one.”

The question now becomes, are the recent falls a sign of a longer term pull back in the metal, or rather a shorter term move brought about by year-end squaring and liquidations by the more speculative longs, in order to cover other loss-making positions.

While Gartman has turned bearish, many other commentators remain positive about the longer term outlook for the metal.

UBS’s Edel Tully wrote this morning, “Our core view on gold remains bullish. We forecast an average 2012 price of $2,050. Most of the factors that pushed gold higher in 2011 are not going away. Indeed, a compelling case for higher gold returns next year can be built on: persistent sovereign stress, an expected recession in Europe, benign growth across developed markets, a relatively sedate outlook for competing asset classes, still-low interest rates in the US, and further rate declines in Europe, as we expect. Adding to the mix another of our expectations - that central banks will maintain their 2011 gold buying spree - makes gold a compelling investment thesis.”

However, while the bank remains positive on gold it has lowered its average gold price estimates for both 2011 and 2012 by 2% and 1% respectively to $1,570/oz and $2,050/oz.

And, overall, the group is more bearish on commodities in general, ” Two of our most important signals for the miners and commodities have turned negative. Capital is flowing out of emerging markets and back to the US, undermining commodity demand - because macro data and credit conditions there are improving, making an imminent commodity-supporting ‘QE3′ unlikely. Meanwhile, European bank deleveraging promises more credit stress, directing commodity consumers and traders to destock. Right now, commodities need support from either a resurgent China or a substantial, US/European-led QE programme.”

Standard Bank, writing in its daily commodities note yesterday said of the weakness in the yellow metal, We believe that this downward pressure is likely to remain in place. Physical market demand from India and South East Asia continues to pick up, with gold below $1,650 providing support at this key technical level. However, as pointed out yesterday, the pick-up in demand is from relatively low levels, and overall demand remains well below levels seen in October.”

But, as it points out, “While gold in dollar-terms is under huge pressure, gold in euro-terms only shed €20. Market sentiment and momentum has also turned bearish on gold, reflected in the short-dated gold skew where puts are in high demand relative to calls.”

Silver specialist and precious metals commentator, David Morgan, speaking on Mineweb.com’s metals weekly podcast, described the situation currently being seen in markets as one of “wait-you-out or scare-you-out.”

He explained that either markets will “scare you out” with huge drops that are very rapid - or “wear you out where you get these long consolidations where silver and/or gold do not make new highs but the fundamentals keep getting better and better.”

Currently he says, there is a lot of fear in markets and, while a minority of people view gold and silver as the “ultimate cash” most of the world’s population view currency as such and, as a result, when there is a liquidity squeeze markets move into cash.

“There’s a rush from any asset - real estate, stocks, bonds, even metals, and especially paper metals, into the monetary base or the ultimate monetary base which is the currency. And that puts a lot of pressure upward in certain currencies like the US dollar because right now it’s perceived to be the safest… I believe this is an intermediate term situation which puts pressure [downward] on the gold and silver price and also puts pressure upward on the currencies, especially the ones perceived to be the strongest and safest.”

All in all, while a lot of commentators remain bullish long-term there is a significant amount of fear present in markets, especially as we head toward the year-end. As usual coming up to and during the holidays emotions are high and when you mix in a continued crisis in the euro zone, looming debt problems in the U.S. and the frantic scramble to square the accounts before December 31st, it is safe to guess that markets are both scared and worn out. How long that will last though, is anyone’s guess.

By: Geoff Candy
Source: http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=141729&sn=Detail

Proposed German industrial alliance aims to secure critical metals supply

With the German federal government’s blessing, conglomerates are forming the Alliance for Commodity Hedging to secure supplies of critical raw materials.

RENO, NV -

Germany’s BDI Federation of German Industries is helping at least 12 major German conglomerates form an alliance to secure raw materials, such as base and rare earth metals, to overcome fears of supply shortages.

In an interview with Bloomberg, BDI spokesman Alexander Mihm said the Allianz zur Rohstoffsicherung (Alliance for Commodity Hedging) will be founded at the beginning of the new year. Among the companies who will join the alliance are BASF SE, the world’s largest chemical maker, steel company Thyssen Krupp AG, and specialty chemical company Evonik.

Trade restrictions by major commodity exporters such as China and rapidly rising commodity prices apparently prompted these companies to form the alliance, based on a concept created by the Boston Consulting Group. The goal is to establish a global, for-profit resource company that allows the German industry to have independent access to critical materials, such as copper and rare earths.

Access to REE deposits is crucial to the development of high technology industries in Germany, including the renewable energy sector, which is viewed as a driving force of the German economy.

The Dusseldorf-based business newspaper Handelsblatt reported that the alliance has the support of Germany’s federal government including the Chancellor’s Office, Ministry of Economy, Foreign Office, and Department of International Development.

In October, German Chancellor Angela Merkel signed an intergovernmental agreement on resources, industry and technology partnership with Mongolian Prime Minister Sukhbaataryn Batbold. The signing of the resource partnership was a consequence of the German government’s strategy to support German companies in getting access to iron, silicon and rare earth metals.

German companies want access to Mongolia’s deposits of coal and rare earths in exchange for providing the machines to extract resources. However, the German government has not yet succeeded in concluding a contract for the mining of rare earths in Mongolia, due to intense competition for REEs from Chinese and Russian companies.

A similar alliance with the government of Kazakhstan is also being sought by the German federal government.

However, the member companies of Alliance for Commodity Hedging have made it clear to the German government that they want political, not financial support, Handelsblatt said.

Mihm told Bloomberg that the alliance will cost participants several hundred thousand Euros, and once project begin, other contributions will be required.

By: Dorothy Kosich
Source: http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=140136&sn=Detail&pid=102055

China’s environmental watchdog tightens control over rare earth projects

BEIJING, Nov. 24 (Xinhua) — The Ministry of Environmental Protection on Thursday announced a list of the first 15 rare earth metal enterprises that have passed the ministry’s environmental protection check.

The enterprises were selected from 84 companies that passed inspections by environmental watchdogs in 14 provincial divisions, said Tao Detian, the ministry’s spokesman.

China currently has more than 300 enterprises working in the rare earth metal industry.

Environmental protection departments across China will not accept environmental impact assessment reports on any new rare earth projects unless they are submitted by enterprises that are on the list, Tao said.

Without an environmental impact assessment report, no industrial projects can be legally approved in China.

In April, the ministry started a nationwide inspection of rare earth enterprises, evaluating their environmental impact, pollution control measures and efforts to reduce emissions of greenhouse gases.

According to the inspection, rare earth enterprises have typically not performed well in controlling pollution and protecting local environments, Tao said.

The ministry found that several enterprises did not submit environmental impact assessment reports, while others did not properly dispose of dangerous industrial waste, he said. Mining enterprises, in particular, have caused serious damage to local ecology, Tao said.

Enterprises that have failed the inspection have been urged to change their practices, while those that have seriously violated environmental laws will have their operations suspended and be forced to pay fines, Tao said.

The inspection will be expanded to highly-polluting industries such as steel production, leathermaking, lead-acid battery manufacturing, citric acid production and ethyl alcohol production, he said.

By: Xiong Tong
Source: http://news.xinhuanet.com/english2010/china/2011-11/24/c_131267958.htm

China’s Rare-Earth Domination Keeps Wind Industry On Its Toes

Wind turbine manufacturers are scrambling to find alternatives to a key element used in direct-drive permanent magnet generators (PMGs), thanks to skyrocketing prices and diminishing supplies of crucial rare earths.

China currently provides 94% of the world’s rare earths, including neodymium and dysprosium, which are used in the magnets for direct-drive wind turbine motors. However, the Chinese government has put new restrictions on rare-earth mining that have resulted in lower supply levels, according to a report from research firm Roskill Information Services (RIS).

For instance, this year, the Chinese government issued new regulations requiring all companies that mine rare earths to show they have mandatory production plans, appropriate planning permission, environmental certification and safety licenses.

But it was last year’s tightening of China’s export quota that really impacted the rare-earth market. Between May 2010 and August 2011, Chinese internal prices for neodymium increased eightfold - a reflection of the shortage of rare earths for magnets within China, RIS notes.

China has also ramped up its export taxes on rare earths, causing a shortage in the rest of the world.

As a result, only 25% of the world’s rare-earth supply will come from China by 2015, as demand for the neodymium and dysprosium necessary for the manufacture of magnets for wind turbines will climb at a pace of 7% to 9% per year through 2015, according to RIS’ research.

This growth in demand could result in a supply deficit within that time frame, causing wind turbine manufacturers to rush to find alternatives to PMGs.

Searching for other options

Some companies that rely on PMGs for their wind turbines have already taken steps to avoid the problem.

In September, PMG manufacturer Boulder Wind Power engaged Molycorp - which claims to be the only U.S. supplier of rare earths, and the largest provider outside of China - to be its preferred supplier of rare earths and/or alloys for wind turbine generators.

In addition to avoiding the trade conflicts and price volatility associated with China by using a U.S.-based supplier, the company also uses permanent magnets that do not require dysprosium, a very scarce rare earth.

“By effectively solving the dysprosium supply problem for the wind turbine industry, this technology removes a major hurdle to the expansion of permanent magnet generator wind turbines across global markets,” says Mark A. Smith, Molycorp’s president and CEO.

Direct-drive wind turbine manufacturer Goldwind has taken a similar approach.

“As a result of early price increases, Goldwind began developing efficiencies and alternatives that reduce the amount of rare-earth materials required to manufacture our magnets, which, in turn, mitigates our exposure to future price fluctuations,” Colin Mahoney, spokesperson for Goldwind USA, tells NAW. “This is a scenario that we have long considered.”

Despite RIS’ somewhat negative forecast, some say the worst is over. Because companies are looking to U.S. rare-earth suppliers, such as Molycorp, instead of to China - as well as coming up with alternatives that do not involve rare earths - there is some indication that prices may come down.

In fact, a recent New York Times article claims prices have dropped significantly since August.

Goldwind’s Mahoney agrees with that assessment.

“While the price of rare-earth materials have fluctuated over the past several years, more recent trends have included a dramatic drop in the neodymium market,” he says.

Still, it is uncertain how long these prices can be maintained, as demand for rare earths is expected to soar by 2015, the RIS report notes.

By: Laura DiMugno
Source: http://www.nawindpower.com/e107_plugins/content/content.php?content.8925

Chasing Rare Earths, Foreign Companies Expand in China

CHANGSHU, China — China has long used access to its giant customer base and cheap labor as bargaining chips to persuade foreign companies to open factories within the nation’s borders.

Now, corporate executives say, it is using its near monopoly on certain raw materials — in particular, scarce metals vital to products like hybrid cars, cellphones and energy-efficient light bulbs — to make it difficult for foreign high-tech manufacturers to relocate or expand factories in China. Companies that continue making their products outside the country must contend with tighter supplies and much higher prices for the materials because of steep taxes and other export controls imposed by China over the last two years.

Companies like Showa Denko and Santoku of Japan and Intematix of the United States are adding new factory capacity in China this year instead of elsewhere because they need access to the raw materials, known as rare earth metals.

“We saw the writing on the wall — we simply bought the equipment and ramped up in China to begin with,” said Mike Pugh, director of worldwide operations for Intematix, who noted that the company would have preferred to build its new factory near its Fremont, Calif., headquarters.

While seemingly obscure, China’s policy on rare earths appears to be directed by Prime Minister Wen Jiabao himself, according to Chinese officials and documents. Mr. Wen, a geologist who studied rare earths at graduate school in Beijing in the 1960s, has led at least two in-depth reviews of rare earths this year at the State Council, China’s cabinet. And during a visit to Europe last autumn, he said that little happened on rare earth policy without him.

China’s tactics on rare earths probably violate global trade rules, according to governments and business groups around the world.

A panel of the World Trade Organization, the main arbiter of international trade disputes, found last month that China broke the rules when it used virtually identical tactics to restrict access to other important industrial minerals. China’s commerce ministry announced on Wednesday that it would appeal the ruling.

No formal case has yet been brought concerning rare earths because officials from affected countries are waiting to see the final resolution of the other case, which has already lasted more than two years.

Karel De Gucht, the European Union’s trade commissioner, cited the industrial minerals decision in declaring last month that, “in the light of this result, China should ensure free and fair access to rare earth supplies.”

Shen Danyang, a spokesman for the commerce ministry, reiterated at a news conference on Wednesday in Beijing that China believed its mineral export policies complied with W.T.O. rules. China’s legal position, outlined in recent W.T.O. filings, is that its policies qualify for an exception to international trade rules that allows countries to limit exports for environmental protection and to conserve scarce supplies.

But the W.T.O. panel has already rejected this argument for the other industrial minerals, on the grounds that China was only curbing exports and not limiting supplies available for use inside the country.

China mines more than 90 percent of the world’s rare earths, and accounted for 60 percent of the world’s consumption by tonnage early this year.

But if factories continue to move to China at their current rate, China will represent 70 percent of global consumption by early next year, said Constantine Karayannopoulos, the chief executive of Neo Material Technologies, a Canadian company that is one of the largest processors in China of raw rare earths.

For the last two years, China has imposed quotas to limit exports of rare earths to about 30,000 tons a year. Before then, factories outside the country had been consuming nearly 60,000 tons a year.

China has also raised export taxes on rare earths to as much as 25 percent, on top of value-added taxes of 17 percent.

Rare earth prices have soared outside China as users have bid frantically for limited supplies. Cerium oxide, a rare earth compound used in catalysts and glass manufacturing, now costs $110,000 per metric ton outside China. That is more than four times the price inside China, and up from $3,100 two years ago, according to Asian Metal, an industry data company based in Pittsburgh.

For most industrial products that are manufactured in China using rare earths and then exported, China imposes no quotas or export taxes, and frequently no value-added taxes either.

Companies do that math, and many decide it is more cost-effective to move to China to get cheaper access to the crucial metals.

“When we export materials such as neodymium from China, we have to pay high tariffs,” said Junichi Tagaki, a spokesman for Showa Denko, which announced last month that it would sharply expand its production of neodymium-based magnetic alloys, used in everything from hybrid cars to computers, in southern China.

The company saves money by manufacturing in China instead of Japan because the alloys are not subject to any Chinese export taxes or value-added taxes, he said.

Big chemical companies are also shifting to China the first stage in their production of rare earth catalysts used by the oil industry to refine oil into gasoline, diesel and other products. They are moving after Chinese state-controlled companies grabbed one-sixth of the global market by offering sharply lower prices, mainly because of cheaper access to rare earths. Chemical companies are also working on ways to reduce the percentage of rare earths in catalysts while preserving the catalysts’ effectiveness.

Production of top-quality glass for touch-screen computers and professional-quality camera lenses, currently done mostly in Japan, is also shifting to China.

Factories are moving despite worries about the theft of trade secrets. Intematix takes elaborate precautions at a factory completed last month here in Changshu, 60 miles northwest of Shanghai, where the company manufactures the rare earth-based phosphors that make liquid-crystal displays and light-emitting diodes work. While Intematix hired Chinese scientists to perfect the industrial processes here, only three know the complete chemical formulas.

China’s timing is excellent, said Dudley Kingsnorth, a longtime rare earth industry executive and consultant in Australia. Mines being developed in the United States, Australia and elsewhere will start producing sizable quantities of rare earths in the next several years, so China seems to be using its leverage now to force companies to relocate.

“They’re making the most of it, and they’re obviously having some success,” he said.

Until Western governments and business groups and media began pointing out the W.T.O. issues, Chinese ministries and officials had repeatedly stated that the purpose of the rules was to encourage companies to move production to China. They switched to emphasizing environmental protection as the trade issues became salient.

China has stepped up enforcement this summer of mining limits and pollution standards for the rare earth industry, which has reduced supplies and pushed up prices within China, although not as much as for overseas buyers. The crackdown might help the country argue to the W.T.O. that it is limiting output for its own industries.

But other countries are likely to argue that the crackdown is temporary, and that previous crackdowns have been short-lived.

Charlene Barshefsky, the former United States trade representative who set many of the terms of China’s entry to the W.T.O. in 2001, wrote in an e-mail that one problem with the W.T.O. was that its panels did not have the power to issue injunctions,. So countries can maintain policies that may violate trade rules until a panel rules against them and any appeal has failed.

Even then, the W.T.O. can order a halt to the offending practice, but it usually cannot require restitution for past practices except in cases involving subsidies, which are not directly involved in the rare earth dispute.

To be sure, China is offering some carrots as well as sticks to persuade foreign companies to move factories to China.

Under China’s green industry policies, the municipal government of Changshu let Intematix move into a newly built, 124,000-square-foot industrial complex near a highway and pay no rent for the first three years.

Intematix pays $400 to $500 a month (2,500 to 3,000 renminbi) for skilled factory workers like Wang Yiping, the 33-year-old foreman on duty on a recent morning here. It pays $500 to $600 a month (3,000 to 3,500 renminbi) for young, college-educated chemical engineers like Yang Lidan, a 26-year-old woman who examined rare earth powders under an electron scanning microscope in a nearby lab.

It was also relatively cheap to buy the factory’s 52-foot-long blue furnaces, through which rare earth powders move on extremely slow conveyor belts while superheated to 2,800 degrees Fahrenheit. With many Chinese suppliers competing, Intematix paid one-tenth to one-fifth of American equipment prices, said Han Jiaping, the factory’s vice president of engineering.

Still, Mr. Pugh said that the company’s decision to build the factory in China was based not on costs but on reliable access to rare earths, without having to worry about quotas or export taxes.

“I think this is what the Chinese government wanted to happen,” he said.

By: KEITH BRADSHER
Source: http://www.heraldtribune.com/article/20110824/ZNYT01/108243014?p=1&tc=pg&tc=ar

Are Molybdenum Prices On Their Way Down And Out?

China, as the world’s largest steel producer, is the world’s largest consumer of molybdenum. China is also the world’s largest moly-producing country (although North America is the largest producing region). According to the International Molybdenum Association, use of molybdenum in transportation, power generation, building and construction will likely increase by 6 percent each year through 2019. This view was shared by Roskill last year, who saw under-investment in molybdenum projects in 2009 and 2010 having consequences for supply as far ahead as 2015. So if demand is strong and supply is constrained, why have prices fallen this year, and could the predicted long-term price / demand trend be at risk?

One-year look at molybdenum stocks. Source: LME

Iron ore demand and steel production in the world’s largest steel market, China, have remained strong this year, yet molybdenum imports have not kept pace. As an article in the Tex Report states, the Chinese Iron and Steel Association (CISA) released data showing that steel production in September was up 3.1 percent from August.

The total annualized run rate of production is over 700 million tons, compared year-over-year with 2010, when China produced just over 550 million tons. The global steel production growth rate stands at 9.8 percent, although recent numbers suggest a distinct softening everywhere except Asia. China, however, has been pushing 13.8 percent this year. The continued strength of steel production in China would suggest that molybdenum, an essential in high-strength steel production, would also be equally well supported. But as the table below shows, China has swung to becoming a net exporter of moly oxide.

Source: The TEX Report

Although June and July saw imports exceed exports as domestic mines in China are brought on-stream, it is expected that China will increasingly seek to rely on domestic molybdenum concentrate supply rather than imports, resulting in ongoing pressure on prices. Molybdenum has fallen to below $14/lb, and unless Chinese merchants decide to step back into the market to opportunistically import, global demand is likely to remain bereft of Chinese buying.

While domestic prices have followed the global trend in broad terms, this graph of ferro-moly prices in China taken from the MetalMiner IndX shows they have not been as volatile:

Domestic China Ferro Moly Price

With slowing demand in China inevitably feeding through into slowing steel growth, the chances of China resuming imports on a consistent basis looks unlikely. Good news for moly consumers in the West, who were harboring concerns earlier that supply constraints would prompt a return to higher prices next year.

by Stuart Burns

Bismuth, Stepping Out of Leads Shadow

Today we hear much about the demise of lead and its uses because of its toxicity.  This will have a huge impact on the value of the rare industrial metal we will discuss today.  Enter bismuth, the brittle white metal an element symbol of Bi and atomic number 83.  Bismuth was discovered in 1783 by Claude Geoffroy the Younger.  This rare industrial metal is mined as a by-product of lead, silver, copper, molybdenum, tin and gold.  The element is 86% as dense as lead.  Bismuth is the most naturally diamagnetic metal meaning it is the most resistant to being magnetized.  Mercury is the only metal that has a lower thermal conductivity.  It also has a high electrical resistance.  Bismuth has been classified as the heaviest naturally occurring element.

One of the most interesting aspects of bismuth is its crystalline structure that forms a spiral stair step structure.  It is caused by a higher growth rate around the outside edges than on the inside edges of cooling bismuth.  The beautiful colorations of the crystals are caused by variations in the thickness of the oxide layer that forms on the crystal surface which causes wavelengths of light to interfere upon reflection.  When bismuth burns with oxygen present it burns with a blue flame.

Bismuths uses are growing all the time.  Some of its largest uses are in cosmetics, pharmaceuticals, catalysts, metallurgical additives, galvanizing, solders, ammunition and fusible alloys.  The one most people associate with bismuth is, Pepto Bismol.  Lead-Bismuth Coolant is also used as a coolant for nuclear reactors.

There are a few issues that are causing alarm within the industries that use bismuth.  The first is that China is implementing export controls over all rare earth elements and rare industrial metals.  China produces about 80% of all the world´s refined bismuth.  The second issue is lead acid batteries will soon be replaced by nickel-cadmium and lithium-ion.  Lead mining is the main source of bismuth mining worldwide.  Crude lead bullion contains approximately 10% bismuth which is taken out when lead is refined further using the Kroll-Betterton or the Betts process.  This leaves us with 99% pure bismuth.  The long-term sustainability is in jeopardy because of the lead storage battery.  There is a distinct possibility that we will soon see this battery replaced.  Overnight 80-90% of the lead market would be gone.  This will be catastrophic for bismuth industries.  The mining of bismuth would then have to rely on its other sources which provide much less metal.  Recycling would have to be a major source of bismuth in the future.  The problem with recycling bismuth is that many of its uses, almost 60% in pharmaceutical and cosmetic uses, would make it very difficult to meet the demand.

Once again we have the story about a rare industrial metal that is used in so many products that we use every day.  How will this affect the end prices of these products?  History tells us not much initially, but in the future the story could be much different.  Bismuth with its many uses may be worth enough that mines open exclusively for this metal.  Recently the British Geological Survey 2011 put bismuth on its list of at risk metals.  Countries like Bolivia, Canada, Peru, Mexico and China will no doubt profit greatly if we have a significant rise in the value of bismuth.  How will you profit?

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

The Rare Industrial Metals and the World

Neodymium Magnets

Over the last year the markets have been up and down.  One sector of metals has been rising steadily for years.  This is the Rare Industrial Metals and Rare Earth sector.  One way or another everyone on the planet is dependent on these metals.  Imagine a world without them; no cell phones, no iPads, no LCD’s, no lasers, no jet aircraft, no electric vehicles, no alternative energies and no nuclear energy.  National Geographic calls the rare earth complex of elements, ¨The Secret Ingredient of Almost Everything¨.

Something is happening under the radar that is having a huge impact on the price of many of the metals.  China has a 90% control of all Rare Industrial Metals.  China has decided to cut its exports of metals like tungsten, cobalt, indium, tellurium, tantalum and gallium.  The Chinese believe that if they make the prices of these metals out of reach for European, Japanese and American industry the industries will have to bring their jobs to China.  For example, this is already having an effect on the magnets industry.  These magnets are critical for electric vehicles, wind power and many other applications.  The USA, UK, EU, Japan and South Korea have all put the elements needed for the magnet industry and many others on their critical lists.

Over the last year, China has had a slash fest.  In 2010 they cut a whopping 72% of their RIM export quotas for the last part of the year.  In December, they again whittled 35% off the quota for the first half of this year and are talking about another 30% for the fall of 2011.   Some speculate that the country will completely shut out the world by 2014 in order to secure their own demand and manufacturing dominance.

Obviously this is creating somewhat of an international crisis.  Nations with technology backbones are currently taking heed and hedging themselves with alternative suppliers – and they are limited.

In the US, politicians are getting involved pointing out how critical RIMs / Rare Earth Elements (REEs) are to National security.  Congressman Mike Coffman (R-CO) is proposing the RESTART Act of 2011 which essentially admits the US dropped the ball while depending on China to supply these vital resources.  The act proposes to jumpstart a RIM/REE supply chain in the US over the course of five years.

There is no doubt other producers will pop onto the scene due to rising values.  Many organizations are now making efforts to explore and exploit in light of recent economically feasible price ranges.  Despite their efforts however, there are no indications the supply will outweigh demand in the short, medium or long term.  With the exploding technology sectors and a push for clean energy, industry simply won’t let it happen.

What’s interesting is that RIMs are very inelastic.  Their economic presence is so small in the supply chain that they barely affect end users.  Take for instance indium, critical to flat panel TV’s, smart phones and solar CIGS (copper, indium, gallium selenide) solar cells.  In 2003, the metals’ price was pegged at $60/Kg.  Today, in a world with an average annual output over 1.2 billion smart phones and 200 million flat screens, Indium hovers around $800/kg in China before exorbitant export taxes and other duties, which in turn increases the price by 100% or more for the Western world. Despite this increase the public hasn’t felt a significant blow.  In fact, many of these gadgets are getting cheaper.

As we eventually see more of an abundant supply in years to come, it will likely be allocated immediately.  With emerging powerhouses like India and China growing at alarming rates, technology and clean energy advancing into the 21st century, it’s difficult to conceive how new sources will keep up.  Nations will do their best to bring mines online to produce these critical rare industrial metals, the problem is that in the west these processes take years.  The technology is there to produce metals much cleaner than in the past.  Nations have a choice to make, either mine and have jobs in your jurisdiction or let China do the mining and have all the industrial production jobs.

By: Randy Hilarski - The Rare Metals Guy

China’s Rare Earths Monopoly - Peril or Opportunity?

September 30, 2011 (Source: Market Oracle) — The prosperity of China’s “authoritarian capitalism” is increasingly rewriting the ground-rules worldwide on the capitalist principles that have dominated the West’s economy for nearly two centuries.

Nowhere is this shadow war more between the two systems more pronounced than in the global arena of production of rare earths elements (REEs), where China currently holds a de facto monopoly, raising concerns from Washington through London to Tokyo about what China might do with its hand across the throat of high-end western technology.

In the capitalist West, as so convincingly dissected by Karl Marx, such a commanding position is a supreme and unique opportunity to squeeze the markets to maximize profits.

Except China apparently has a different agenda, poking yet another hole in Marx’s ironclad dictums about capitalism and monopolies, further refined by Lenin’s screeds after his Bolsheviks inadvertently acceded to power in 1917 in the debacle of Russia’s disastrous involvement in World War One. Far from squeezing its degenerate capitalist customers for maximum profit (and it’s relevant here to call Lenin’s dictum that if you want to hang a capitalist, he’ll sell you the rope to do it), Beijing has apparently adopted a “soft landing” approach on rare earths production, gradually constricting supplies whilst inveigling Western (and particularly Japanese) high tech companies to relocate production lines to China to ensure continued access to the essential commodities.

REEs are found in everyday products, from laptops to iPods to flat screen televisions and hybrid cars, which use more than 20 pounds of REEs per car. Other RRE uses include phosphors in television displays, PDAs, lasers, green engine technology, fiber optics, magnets, catalytic converters, fluorescent lamps, rechargeable batteries, magnetic refrigeration, wind turbines, and, of most interest to the Pentagon, strategic military weaponry, including cruise missiles.

Technology transfer is the essential overlooked component in China’s economic rise, and Beijing played Western greed on the subject like a Stradivarius, promising future access to China’s massive market in return, an opium dream that rarely occurred for most companies. You want unimpeded access to Chinese RREs? Fine – relocate a portion on your production lines here, or…

Which brings us back to today’s topic.

Rare earths and investment – where to go?

China is riding a profitable wave, which depending on what figures you read, produces 95-97 percent of current global supply, and unprocessed raw earth earths ores are currently going for more than $100,000 a ton, or $50 a pound, which some of the exotica fetching far more (niobium prices has increase an astounding 1,000 percent over the last year). Rare earth elements like dysprosium, terbium and europium come mainly from southern China.

According to a United States Energy Department report, dysprosium, crucial for clean energy products rose to $132 a pound in 2010 from $6.50 a pound in 2003.

The soaring prices however have also invigorated many countries and producers to begin looking in their own back yards, for both new deposits and former mining sites that were shuttered when production cost made them uneconomic before prices went through the ceiling.

However, a number of unknown factors play into developing alternative sources to current Chinese RRE production. These include first prospecting possible sites, secondly, their purity and third, initial production costs, where modest Chinese labor costs are a clear factor.

The 17 RRE elements on the Periodic Table are actually not rare, with the two least abundant of the group 200 times more abundant than gold. They are, however, hard to find in large enough concentrations to support costs of extraction, and are frequently found in conjunction with radioactive thorium, leading to significant waste problems.

At hearings last week before U.S. House of Representatives Committee on Foreign Affairs Subcommittee on Asia and the Pacific, Molycorp, Inc. President and Chief Executive Officer Mark A. Smith stated that his company was positioned to fulfill American rare earth needs, currently estimated at 15,000-18,000 tons per year, by the end of 2012 if it can ramp up production at its Mountain Pass, California facility.

Which brings us back to foreign producers. A year ago Molycorp announced that it was reopening its former RRE mine in Mountain Pass, Calif., which years ago used to be the world’s main mine for rare earth elements, filing with the SEC for an initial public offering to help raise the nearly $500 million needed to reopen and expand the mine. Low prices caused by Chinese competition caused the Mountain Pass mine to be shuttered in 2002.

Mountain Pass was discovered in 1949 by uranium prospectors who noticed radioactivity and its output dominated rare earth element production through the 1980s; Mountain Pass Europium made the world’s first color televisions possible.

Molycorp plans to increase its capacity to mine and refine neodymium for rare earth magnets, which are extremely lightweight and are used in many high-tech applications and intends to resume production of lower-value rare earth elements like cerium, used in industrial processes like polishing glass and water filtration.

In one of those historic economic ironies, China was able to increase its RRE production in the 1980s by initially hiring American advisers who formerly worked at Mountain Pass.

The record-high REE prices are also underwriting exploration activities worldwide by more than six dozen other companies in the United States, Canada, South Africa, Malaysia and Central Asia to open new RRE mines, but with each start-up typically raising $10 million to $30 million, not all will succeed. That said, the future is bright, as almost two-thirds of the world’s supply of REEs exists outside of China and accordingly, China’s current monopoly of REE production will not last.

So where do investors look to cash in on the RRE boom?

First, do your homework.

Exhibit A is Moylcorp, which would seem to be in unassailable position as regards U.S. production, but which nevertheless on 20 September after JPMorgan Chase & Co. lowered its rating of the company, citing declines in rare-earth prices, causing its stock to plummet 22 percent in New York Stock Exchange composite trading, despite being the best-performing U.S. IPO in 2010 after beginning trading in July, more than tripling after rare-earth prices soared as China cut export quotas.

Is there money to be made in RREs?

Undoubtedly – but the homework for the canny investor needs to extend beyond spreadsheets to geopolitics, mining lore, chemistry and Wall Street puffery. That said, it seems likely that whatever U.S.-based company can cover the Pentagon’s RRE requirements is likely to see more than a minor boost in its bottom line.

Gentlemen, place your bets – but do your homework first.

China Consolidates Grip on Rare Earths

BEIJING€” In the name of fighting pollution, China has sent the price of compact fluorescent light bulbs soaring in the United States.

The price of compact fluorescent light bulbs has risen drastically in the last year because of the rising cost of rare earth metals.
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By closing or nationalizing dozens of the producers of rare earth metals — which are used in energy-efficient bulbs and many other green-energy products — China is temporarily shutting down most of the industry and crimping the global supply of the vital resources.

China produces nearly 95 percent of the world’s rare earth materials, and it is taking the steps to improve pollution controls in a notoriously toxic mining and processing industry. But the moves also have potential international trade implications and have started yet another round of price increases for rare earths, which are vital for green-energy products including giant wind turbines, hybrid gasoline-electric cars and compact fluorescent bulbs.

General Electric, facing complaints in the United States about rising prices for its compact fluorescent bulbs, recently noted in a statement that if the rate of inflation over the last 12 months on the rare earth element europium oxide had been applied to a $2 cup of coffee, that coffee would now cost $24.55.

A pack of three 11-watt G.E. compact fluorescent bulbs each the lighting equivalent of a 40-watt incandescent bulb€” was priced on Thursday at $15.88 on Wal-Mart’€™s Web site for pickup in a Nashville, Ark., store. The average price for fluorescent bulbs has risen 37 percent this year, according to the National Electrical Manufacturers Association.

Wal-Mart, which has made a big push for compact fluorescent bulbs, acknowledged that it needed to raise prices on some brands lately. €œObviously we don’t want to pass along price increases to our customers, but occasionally market conditions require it, Tara Raddohl, a spokeswoman, said. The Chinese actions on rare earths were a prime topic of conversation at a conference here on Thursday that was organized by Metal-Pages, an industry data firm based in London.

Soaring prices are rippling through a long list of industries.

The high cost of rare earths is having a significant chilling effect on wind turbine and electric motor production in spite of offsetting government subsidies for green tech products, said one of the conference attendees, Michael N. Silver, chairman and chief executive of American Elements, a chemical company based in Los Angeles. It supplies rare earths and other high-tech materials to businesses.

But with light bulbs, especially, the timing of the latest price increases is politically awkward for the lighting industry and for environmentalists who backed a shift to energy-efficient lighting.

In January, legislation that President George W. Bush signed into law in 2007 will begin phasing out traditional incandescent bulbs in favor of spiral compact fluorescent bulbs and other technologies. The European Union has also mandated a switch from incandescent bulbs to energy-efficient lighting.

Representative Michele Bachmann of Minnesota is running for the Republican presidential nomination on a platform that includes strong opposition to the new lighting rules in the United States and has been a leader of efforts by House Republicans to repeal it.

China says it has largely shut down its rare earth industry for three months to address pollution problems. By invoking environmental concerns, China could potentially try to circumvent international trade rules that are supposed to prohibit export restrictions of vital materials.

In July, the European Union said in a statement on rare earth policy that the organization supported efforts to protect the environment, but that discrimination against foreign buyers of rare earths was not allowed under World Trade Organization rules.

China has been imposing tariffs and quotas on its rare earth exports for several years, curtailing global supplies and forcing prices to rise eightfold to fortyfold during that period for the various 17 rare earth elements.

Even before this latest move by China, the United States and the European Union were preparing to file a case at the W.T.O. this winter that would challenge Chinese export taxes and export quotas on rare earths.

Chinese officials here at the conference said the government was worried about polluted water, polluted air and radioactive residues from the rare earth industry, particularly among many small and private companies, some of which operate without the proper licenses. While rare earths themselves are not radioactive, they are always found in ore containing radioactive thorium and require careful handling and processing to avoid contaminating the environment.

Most of the country’€™s rare earth factories have been closed since early August, including those under government control, to allow for installation of pollution control equipment that must be in place by Oct. 1, executives and regulators said.

The government is determined to clean up the industry, said Xu Xu, chairman of the China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters, a government-controlled group that oversees the rare earth industry. €œThe entrepreneurs don’€™t care about environmental problems, don’t care about labor problems and don’€™t care about their social responsibility,€ he said. €œAnd now we have to educate them.

Beijing authorities are creating a single government-controlled monopoly, Bao Gang Rare Earth, to mine and process ore in northern China, the region that accounts for two-thirds of China’s output. The government is ordering 31 mostly private rare earth processing companies to close this year in that region and is forcing four other companies into mergers with Bao Gang, said Li Zhong, the vice general manager of Bao Gang Rare Earth.

The government also plans to consolidate 80 percent of the production from southern China, which produces the rest of China’€™s rare earths, into three companies within the next year or two, Mr. Li said. All three of these companies are former ministries of the Chinese government that were spun out as corporations, and the central government still owns most of the shares.

The taxes and quotas China had in place to restrict rare earth exports caused many companies to move their factories to China from the United States and Europe so that they could secure a reliable and inexpensive source of raw materials.

China promised when it joined the W.T.O. in 2001 that it would not restrict exports except for a handful of obscure materials. Rare earths were not among the exceptions.

But even if the W.T.O. orders China to dismantle its export tariffs and quotas, the industry consolidation now under way could enable China to retain tight control over exports and continue to put pressure on foreign companies to relocate to China.

The four state-owned companies might limit sales to foreign buyers, a tactic that would be hard to address through the W.T.O., Western trade officials said.

Hedge funds and other speculators have been buying and hoarding rare earths this year, with prices rising particularly quickly through early August, and dipping since then as some have sold their inventories to take profits, said Constantine Karayannopoulos, the chief executive of Neo Material Technologies, a Canadian company that is one of the largest processors in China of raw rare earths.

“€œThe real hot money got into the industry building neodymium and europium inventories in Shanghai warehouses,”€ he said.

Correction: September 17, 2011
An article on Friday about the effect of China’s control over rare earth metals on energy-efficient products like light bulbs misstated the price of 11-watt G.E. compact fluorescent bulbs listed on Wal-Mart’€™s Web site. The price of $15.88 is for a three-pack, not a single bulb.

www.nytimes.com
Sephanie Clifford
09/15/2011