Competing with the Chinese rare earths juggernaut

Rare earth testing being undertaken.

The price and demand for rare earths are on the move, with analysts speculating the catalyst for this is a United States strategy to look for non-China sources of the material.

For many, the current US-China trade war has allowed China to leverage off its near rare earths global monopoly, in order to coerce the US to give in to trade demands.

Beneath the surface however, there could be a different reason for rare earths returning to the spotlight, and Australian producer Alkane Resources is privy to this.

The company’s general manager of marketing Alister Macdonald believes that China wants its own rare earths all for itself as it seeks to capture the entire value chain.

This includes everything from production to separations and use end products, for its own needs, as well as exporting end products to meet the two main sources of global demand – magnets for renewable energy and electric vehicles (EV).

As Macdonald says, “just as France will sell you wine and not its grapes, so too is China moving to selling just end products that contain rare earths, not the raw material.”

While China hasn’t moved to ban the export yet, as it has done previously, it has become a net importer to meet its own demand and create a value chain.

While the share prices of Australian rare earths companies such as Lynas Corporation and Alkane indicate growing US interest in alternative supply, a recent visit by Chinese President Xi Jinping to a rare earths magnets plant revealed just how serious China is.

Rare earths themselves are a group of 17 chemically similar, metallic elements that are used to create a variety of everyday devices.

This includes everything from computer memory, DVDs, batteries for cell phones, magnets and fluorescent lighting.

Importantly, however, is the use of rare earth compounds in the batteries that power all EVs and hybrid-EVs.

As concerns for climate change and pollution heighten, so has the interest in renewable energy and EVs, therefore driving the global rare earths market.

The state of the global rare earth markets is problematic, however, as China’s near monopoly means a lack of supply diversity and therefore, decreased sustainability.

Independent rare earths commentator Dudley Kingsnorth believes China’s push for control over the rare earths supply chain has “alarm bells ringing.”

“China produces approximately 85 per cent of rare earths oxides and their current five-year plan involves significantly increasing EV production,” he says.

“What this means is that there is a shift, if they are successful it means lots of jobs in the automotive industry will move to China.”

Australian producer Lynas currently combines with Chinese rare earths majors as key suppliers of the material, and Kingsnorth emphasises that more investment is necessary in the industry to ensure diversity.

“Alarm bells are ringing saying we have to develop supply chains that are alternative, we have China and Lynas, that’s not adequate, it’s not diversity,” he says.

“Realistically, it needs a lot of investment and time to bring projects online, so investors and end users need to support these projects.”

Alkane sees the huge potential in the industry, but like Kingsnorth, believes that heavy backing is needed to allow the Australian supply chain to be competitive.

The company, which is in the financing stage of its Dubbo project, intends to produce significant volumes of 15 rare earths, including neodymium, praseodymium, terbium and dysprosium.

These materials are in high demand for permanent magnets used in the high-volume markets, such as renewable energy, EVs, personal technology and robotics.

Located at Toongi, which is 25 kilometres south of Dubbo in central NSW, the construction-ready project is one of the most advanced polymetallic prospects of its kind outside China.

Rare earth materials at Alkane’s Dubbo site.

 

Alkane has been able to leverage off the success of its gold deposits to assist with the funding of the Dubbo project, which according to managing director Nic Earner, has provided “income strength.”

Earner gives a unique insight into the affect the current economic climate has had on rare earths in Australia, as he notes “turbulent economic times are good for Alkane in a way.”

“The volatility in the sector is absolutely nothing new, while it’s good as it sharpens the focus and gets counterparties talking, it still needs more potential and pressure,” he says.

While China continues to affect the market through talks of trade halts and tariffs, Earner says the sector requires action rather than speculation.

“What I would like to see is the Chinese really show their hand in where they are strategically taking their manufacturing sector through raw materials like rare earths because that would force global investors to act,” he says.

“I would like a removal of uncertainty, if they’re going to put tariffs on, put them on.”

The reality is that according to the Made in China 2025 policy, the Chinese economy is striving to become world leaders in the downstream areas that traditionally the US has dominated.

Magnetic making is a particular area that China has been able to dominate, with the only other country being able to mass produce magnets being Japan.

An anticipated overall growth rate of magnets by Kingsnorth is equal to six to eight per cent a year, with eight to 12 per cent growth of EV magnets.

China, through strategic decisions is in a position to capitalise on this, after years of preparation.

“What some people don’t realise is that through aggressive pricing, China has hollowed out magnet making capacity in every country but Japan,” Earner says.

“Western nations must re-establish, which is a decade-long endeavour, it needs companies to prepare to not make as much money and also government support.”

Having worked in the rare earths sector for over a decade, Kingsnorth has previously recognised China’s strategy, which may eventually affect the Australian market.

“China doesn’t want to sell rare earths, they want to sell EVs, they want to sell products rather than the raw material,” he says.

“We have to diversify supply, without diversity of supply there’s no sustainability.”

Ultimately, Alkane is calling for an increased focus outside China on rare earths production because while China has a near monopoly on rare earths production, it anticipates there will be a scarcity of supply for world markets, given it uses all production internally.

While heavy investment and sacrifice is necessary to compete, Alkane is optimistic about its own project.

“We believe if the right pricing combines with the right partners, we can launch a profitable project,” Earner says.

And while he insists there is no “silver bullet” to solve the issue immediately, the potential is definitely there.

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