China’s Rare Earth Embargo Hits North America
Commentary – ProspectingJournal.com – Since this content is displayed online, I can confidently say that the future of devices like the one that you are currently reading on is in jeopardy. Not a lot of us are familiar with what goes into our laptops, smart phones or LCD televisions, besides the brow-sweat of labour from someone in a foreign land working away on an assembly line wearing gloves and wearing masks over their mouths. But most but not all of the world’s supply of the physical materials needed to keep those technogadgets flowing out into our stores has recently been severed off by China through an embargo started this year. They’re called rare earth minerals, and they’re about to get even rarer. The implications of this are worse than imagined.
For example: As I write this, I rely upon cerium to see my words come to life. As you read this, you rely on cerium to let my words and ideas drift softly into your brain. Finally, the hard drive I saved the first six drafts of this article on is made entirely of cerium! But over a month ago, China, who produces 97% of the world’s cerium supply began to slash its exports of cerium to Japan due to a diplomatic stalemate. Just this week, the restrictions were expanded to North America and Europe.
Now, cerium is utilized in the production of a high-grade polish, necessary to make the thin/durable glass of the lcd screen you’re probably peering through right now. If you’re not shocked by the world’s sudden dip in glass polish, think further up the chain. The three biggest manufacturers of this polish AGC Chemicals, Showa Denko and Mitsui Mining and Smelting. AGC alone transfers much of its supply to its parent company Asahi Glass which supplies ¼ of the world’s LCD glass sheets. These sheets are bought by Sharp, Sony, Panasonic, Mitsubishi. This cutoff hurts them all. Talk about ripple effect.
Companies don’t have enough abrasive stock to see them through,” said Toshi Nagayama, a general manager of AGC Chemicals to Reuters. “The serious pinch in supply will be in November and December.”
November and December? Christmas shopping time? In making this surprise decision, China really knew how to hit the rest of the consumer world where it really hurts. They’re inadvertently being like Dr. Seuss’ grinch, and it’s only October!
So along with cerium supplies being choked off, the rest of the rare earth mineral market got a boost this week. Japan and other high-tech producers need their help, as the current quoted price is $80/kg of cerium, a jump of over 16 times the value of those seen less than a decade ago. With no end in sight to the embargo, it’ll take the combined effort of other countries with these minerals to pick up the slack. Countries like Estonia, Vietnam, Kazakhstan, India and Mongolia will be rushing to open their doors once the means of production are established, as they have all cited claims of large deposits of rare earth mines containing cerium. As will California, which holds the Mountain Pass Mine operated by Molycorp Inc. [MCP – NYSE] which boasts that global demand will hit 220,000 tonnes by 2015, up from the less than 150,000 tonnes now.
In helping to fill the rare earth minerals gap, Canada won’t be left behind. Companies like Eastern Platinum Ltd. [ELR – TSX], Neo Materials [NEM – TSX], Quest Rare Minerals [QRM – TSX.V] and Pele Mountain Resources [GEM – TSX.V] all give followers of this development options out of Toronto instead of New York.
There will indeed be a rush to fill the gap on the world’s demand for rare earths. Finding the stuff isn’t the hardest part, as the setup time for the infrastructure required to extract the materials is where the real challenge lays.
Joji Sakurai, head of Mitsubishi Corporation Minerals (a subsidiary of the giant Mitsubishi Corporation) said this of the crisis:
“There is no alternative source readily available. It’s the worst I’ve seen it in more than 30 years working.”
Take that for what it’s worth. Be sure to enjoy the LCD screen that you already have, for the next one might be a lot more expensive. And now if you’ll excuse me, I’m off to go and quickly get my Christmas shopping done.
G. Joel Chury
DISCLOSURE: No fee has been paid for the production and distribution of this article and as such should be viewed in the context of a commentary. The author does not own any shares of the companies referred to within the article.