China is responsible for more than 95% of the global supply of rare earths and over the weekend the country's Ministry of Land and Resources (MLR), announced that the first production quota for rare earths this year will be set at 46,900 tonnes.

Another quota will be announced later this year and the allotment is broadly in line with recent output caps.

2012 output has not been disclosed, but production totaled 93,800 tonnes in 2011, according to Bloomberg. The MLR also set production for tungsten concentrate at 43,500 tonnes and antimony at 37,680 tonnes.

In December China pegged 6-month export quotas at 15,501 tonnes, also broadly in line with the 2012 figure.

The export quotas – which Japan and the US took all the way to the World Trade Organization dispute resolution body – appears to have become a meaningless exercise.

China only exported some 13,000 tonnes of rare earths through authorized channels during the whole of last year, a mere 40% of the allowed export.

A crackdown on illegal mining, consolidation of the industry under a few large producers, mothballing mines – China's number one producer recently decided to extend its production halt to three months – and the quotas have not helped to put a floor under REE prices which have continued to fall from 2011's stratospheric levels.

The value of many of the 17 elements used in a variety of industries including green technology, defence systems and consumer electronics are down more than 80%.

While mid-2012 prices looked as if it will begin to stabilize, values continue to soften.

Abundant, less valuable REEs have experienced the sharpest reversals.

Lanthanum oxide – used in ceramics and fuel catalysts – for example rose from a price of just $8.71/kg in 2008 to average $117/kg in the third quarter of 2011. By the third quarter of 2012 it was down to $19.54/kg.

As of 7 January 2013 it’s fallen further to $11/kg. Inside China that same kilogram costs $7.54.

This price behaviour can be seen across the board: cerium oxide, used to polish TV screens and lenses, is trading at $12 from an all-time high of $118 in the September 2011 quarter. In 2008 the price for cerium oxide was $4.56.

Praseodymium, used as an alloy in aircraft engines and welder goggles, was available from China in 2009 for $18/kg. After peaking in the second half of 2011 along with all the other rare earths it was still priced at $163/kg during the first quarter of 2012. Monday's benchmark price was $85, down from $105 last September.

The price of a kilogram of samarium oxide increased dramatically from a mere $3.40/kg in 2009 to average $103/kg in 2011. Used in jet fighter electrical systems among other applications, samarium actually increased in value from the first to the second quarter of 2012, from $73/kg to $82/kg.

Now it has plummeted to $25/kg free-on-board while the domestic price in China is only $7.70 for samarium.

Heavy, scarcer REEs have generally held up better, but some have experienced price declines of more than 50%.

Neodymium oxides, used in windmills, continue to slump – from $338/kg in Q3 2011 to $105.31/kg in Q3 2012 to $80/kg today.

A hybrid vehicle ingredient, dysprosium, rocketed from a price of $118.49/kg in 2008 to average $1,449/kg in 2011. It peaked at an astonishing $2,300 by September of that year.

Dysprosium, also used in conjunction with vanadium and other elements in making laser materials, has now given up more than $1,500 per kilogram and now goes for $630/kg. Inside China it is worth only $385/kg.

The reversal in europium oxide – the priciest REE – which is used in medical imaging and the nuclear and defence industries – has been most startling.

The price of europium increased almost 10-fold from $492/kg in 2009 to average $4,900/kg in the third quarter of 2011. In the first quarter of 2012, importers still had to pay $3,623/kg and stayed above $2,000 for most of the year.

The price is now $1,600 a kilogram. Chinese domestic europium is almost half that at $867/kg.

Rare Earth Manufacturer & Supplier: Chinatungsten Online - http://www.chinatungsten.com
Tel.: 86 592 5129696; Fax: 86 592 5129797
Email: sales@chinatungsten.com
Tungsten News & Tungsten Prices, 3G Version: http://3g.chinatungsten.com
Tungsten News & Tungsten Prices, WML Version: http://m.chinatungsten.com

Molycorp (MCP) mines and produces lanthanide and molybdenum compounds, concentrates, and oxides using open-pit mining techniques. Molycorp's top-level product is bastnasite, which is a mixture of rare earth metals in their flurocarbonate form. From this ore, mischmetal can be extracted. On the other hand, bastnasite can be used in the later purification processes of many rare earth metals. Bastnasite also serves as a high-performance polishing product for optics and sensitive equipment.

Lanthanides (which include cerium, lanthanum, and yttrium) are used in everything from cell phones and computers to X-ray film and television glass. The company is staking its future on the production of rare earth oxides (REOs). Molycorp went public in July 2010 with an initial public offering (IPO). Since its IPO, it has been making acquisitions and investing in joint ventures to further its growth. In its biggest takeover to date, Molycorp acquired rare earth processor Neo Material Technologies for about $1.3 billion in 2012.

Current Rare Earth Metals Landscape

China controls about 95% of the global rare earth metals supply, and its restriction on global access has had an interesting affect on the market. China is the biggest producer, as well as consumer, of rare earth elements. As a result of restrictions by China, manufacturers and miners are currently working on finding alternatives to Chinese supply. At the moment, companies are increasing their presence in Central and Southeast Asia. Electronics manufacturers will continue to increase demand as the demand for products increases. However, the U.S. has not been able to devise a plan to cope with the dependence on one supplier.

Japan, the biggest importer of rare earth elements, has increased its efforts to counter the restrictions by China. China's Bayo Obo mine is in close proximity to Mongolia. As a result, Mongolia is getting substantial offers from miners and manufacturers. Japan recently signed a free trade agreement with Mongolia in order to get access to rare earth metals. In addition, Germany and Kazakhstan signed a $4 billion agreement allowing German mining companies access to Kazakhstan's rare earth elements. Germany will provide technical assistance in modernizing railroads and building chemical plants in exchange for the privilege of mining in Kazakhstan.

Furthermore, Japan is also collaborating with India to decrease dependence on China. The Indian state of Orissa has deposits of rare earth elements, which the country is looking to exploit. India is looking to build facilities in Orissa and Central Asia to get a share of this lucrative market.

Importance to the U.S.

Molycorp products are extremely important for the U.S. defense applications. Rare earth elements are used in underwater mine detection equipment, radar systems, jet engine coatings, optics and scopes, lasers, electronic counter measures, and precision guided bombs. The Department of Defense highlighted the importance of rare earth elements to the country, as well as the consequences of China being the only supplier. Molycorp is the answer to the problem for the U.S. The company has suffered due to lower prices, lower product volumes, and higher transaction costs. Molycorp will benefit from its Canadian acquisition and Phoenix project. I expect the company to see more profitability in 2013. It is also expected that the hoards of rare earth metals will start to decrease, and demand will increase. In addition, stricter regulations from the Chinese government will help bring supply down. The Chinese government is trying to stop the illegal mining in order to decrease supply. Decreasing supply should bring prices up, and we should see some recovery in 2013.

Comparison With Peers

Molycorp peers include Lynas Corporation Ltd. and Avalon Rare Metals, Inc.. The table below lists some important metrics for the sake of comparison between these companies.

Companies in the rare earth metals segment are trading at low forward multiples. However, a look at margins shows that the industry has been hit hard by low prices. All three companies have negative ROE at the moment. Molycorp is the only company among the three to have debt; the other two companies do not have long-term debt.

Summary

Rare earth metals are an integral component of a lot of products. Demand for these products will remain high as the global economy recovers. The recovering global economy will increase consumers' disposable income, resulting in increased demand. Furthermore, the Phoenix project and the Canadian acquisition will help Molycorp improve its profitability.

However, Molycorp has several risks associated with it, and only investors with a high risk tolerance should consider it. The biggest risks are a slow recovery in prices and the company's failure to bring down the costs. Molycorp needs to control its costs in order to bring down its losses. Out of the two biggest risks, high cost is the company-specific risk that Molycorp can control. The company should focus on bringing down its costs and augmenting the profit margins.

There is still a lot of uncertainty about the market at the moment, despite some positive steps taken by the Chinese government. If the proposed measures do not yield expected results, the prices for rare earth elements could remain low during 2013. As a result, Molycorp could suffer and stock price may not move much. That's why I believe only investors with a high risk tolerance should consider investing in Molycorp.

Rare Earth Manufacturer & Supplier: Chinatungsten Online - http://www.chinatungsten.com
Tel.: 86 592 5129696; Fax: 86 592 5129797
Email: sales@chinatungsten.com
Tungsten News & Tungsten Prices, 3G Version: http://3g.chinatungsten.com
Tungsten News & Tungsten Prices, WML Version: http://m.chinatungsten.com

China exported only about one-third of its annual export quota for rare earth minerals in the first 10 months of 2012.

According to data from the Customs Statistics Information Center, some 11,312 tons were exported from the beginning of January to the end of October, 36.5 percent of the quota for the year set by the Ministry of Commerce (MOC).

In 2011, China set rare earth export quotas of 30,200 tons but only 18,600 tons were exported, official data shows.

The MOC set the quota for the first batch of export for 2013 at 15,501 tons, without giving the annual total.

Twenty-four companies, such as Baogang Group, China Minmetals Corp. and Aluminum Corp. of China, have obtained their export quotas for this year's first batch, according to the report.

    Baogang, the country's largest producer of rare earth minerals, has the biggest share of the quota. Its four subsidiaries have been allowed to export a combined 1,811 tons.

The United States, European Union, Japan, along with Canada, lodged a complaint with the WTO in March, claiming Beijing was unfairly choking off exports of the commodities to benefit domestic industries.

Rare earths, as vital non-renewable natural resources, are a group of 17 metals vital to a wide range of products and materials like smart phones, wind turbines, electric car batteries, and countless other applications.

China has been insisting that it's unfair to bear the burden of supplying 90 percent of rare-earth demand while only having 23 percent of global reserves, and began to implement stricter environmental standards on mining and refining.

Rare Earth Manufacturer & Supplier: Chinatungsten Online - http://www.chinatungsten.com
Tel.: 86 592 5129696; Fax: 86 592 5129797
Email: sales@chinatungsten.com
Tungsten News & Tungsten Prices, 3G Version: http://3g.chinatungsten.com
Tungsten News & Tungsten Prices, WML Version: http://m.chinatungsten.com

Australia's Lynas Corp Ltd said on Monday it expects to produce commercial rare earth products in the next few weeks from its controversial plant in Malaysia, after commissioning the plant's cracking and leaching units.

The process has achieved recovery rates of more than 90 percent of contained rare earth oxides through the cracking units, which are now ready for production of individual rare earth products, the company said.

"Lynas anticipates commercial rare earth products will be available in the next few weeks with ramp up of production to take place over the next three months," the company said in a statement.

Lynas shares jumped 8.0 percent to A$0.68 in late morning trade to a five-week high, but are still well below levels above $1.40 around a year ago.

Lynas has been embroiled in lengthy environmental and safety disputes with residents near the plant, and the Malaysian high court is due to hear an application for judicial reviews to block its operations on Feb. 5.

The $800 million plant, which opponents say is environmentally hazardous, began operations in November 2012 after long delays caused by legal challenges and safety disputes. Located in the east coast city of Kuantan, it had been ready to fire up since May 2012.

Rare Earth Manufacturer & Supplier: Chinatungsten Online - http://www.chinatungsten.com
Tel.: 86 592 5129696; Fax: 86 592 5129797
Email: sales@chinatungsten.com
Tungsten News & Tungsten Prices, 3G Version: http://3g.chinatungsten.com
Tungsten News & Tungsten Prices, WML Version: http://m.chinatungsten.com