Rare Earth: Boom!
There was quite a seismic shift this last week in the magnet portion of the rare earth industry. Molycorp (blogged about here, here, here, here, and here and probably a few other times, too) announced a major pending acquisition, that of a Canadian company called Neo Technologies. Neo Technologies includes what was once the core business of General Motors' Magnequench Division (blogged about here).
There are several aspects of this that make it more earth-shaking than the $1.3 billion sale price.
More rambling after the jump
Neo Technologies has two NdFeB powder-making facilities, one in Tianjin that Mangequench constructed just prior to closing the Anderson, Indiana, operations, and one in Thailand that was brought online in 2007. These powders are used to produce magnets very different from those made by Hitachi or its licensees (disclosure: Randy's employer is on this list). Rather than bore everyone with the process details, I will point out the most important difference that would matter most to Molycorp--the absence of Dysprosium in the composition. Molycorp's mine has, at best, trace Dysprosium, a small but critical addition to most of the NdFeB magnet grades produced by Hitachi and the licensees. The Magnequench powders, however, do not contain Dy, so it should be a great fit for Molycorp, much like the JV it has announced with Daido and Mitsubishi in Japan after the proposed JV with Hitachi fell through. The Daido process is exceptionally unique among NdFeB magnets. The base material is like that from Magnequench, and it is pressed in a manner so unlike any I have ever seen that I have dreamed of seeing it someday since I started in magnets so long ago. Both Neo Technologies and the Daido JV allow Molycorp captive sources that do not need still to purchase Dy from Chinese or other non-Molycorp sources.
I have to admit I was initially emotional about this. I even tweeted
Of course, this is not the way it is going to play out from here. Molycorp and Neo Technologies have already made it clear that both factories will remain in place. It will be interesting how the Chinese rare earth mining industry reacts to this. Molycorp plans to import their material into China, transferring to their own division that is currently a significant customer of China's mines. In this New York Times piece, Neo Technologies president "Mr. Karayannopoulos said that within an hour of announcing the deal, Neo Material had begun telling Chinese officials that the company’s merger with Molycorp was consistent with China’s official policy of encouraging rare earth resource development elsewhere and environmental protection in China." While this is true, there has not been much legal importing of rare earth oxides or concentrates into China lately. It is entirely possible while that the Chinese government might seem not to worry about the rare earth industry that exists outside its borders, it may take a stand against the loss of business within its borders, either with customs actions or a significant price drop making the importing material a ridiculous business decision. Or, in that way that every option is possible in China, could just take the position of non-response.
AND then add to this the WTO action that is being brought about jointly by the US, the EU, and Japan, charging that China's export controls amount to WTO violations. The timing is not optimal. In 2011, barely half the export quota (which even expanded controlled classes of rare earth materials to those not previously included, such as alloys) shipped. The prices in 2012 have already begun to decline in face of decreasing demand. Customers who previously relied on rare earth magnets and polishing media, to name two, actively sought alternatives last year. Last year I blogged about an American motor manufacturer that slammed the brakes on all rare earth magnet motors, for instance. Even inside of China, rare earth magnets had become cost prohibitive to the very Chinese industries that one would have believed should have benefited from lower in-country pricing and easier access, like wind turbines. Many of the big names, like Sinovel and Dongfang, were already bringing to market turbines with no or significantly less magnets last year as the prices soared.
Most of all, the non-Chinese rare earth miners would probably appreciate the availability of materials from China to be restricted and priced higher, especially now as many of them are just starting to come online. It's been integral to how they sell themselves to investors. If the WTO case against China is successful, could this hamper these efforts? What would happen if, suddenly, prices were back to early 2009 levels, and the quotas were absent. Already, 2012 has been beginning to look like this, with prices dropping, sometimes a few percent a day, and the demand outside of China not even coming close to the export limits, so those may as well not exist. What does anyone win if they win, in this case?
And we continue to watch.
There are several aspects of this that make it more earth-shaking than the $1.3 billion sale price.
More rambling after the jump
Neo Technologies has two NdFeB powder-making facilities, one in Tianjin that Mangequench constructed just prior to closing the Anderson, Indiana, operations, and one in Thailand that was brought online in 2007. These powders are used to produce magnets very different from those made by Hitachi or its licensees (disclosure: Randy's employer is on this list). Rather than bore everyone with the process details, I will point out the most important difference that would matter most to Molycorp--the absence of Dysprosium in the composition. Molycorp's mine has, at best, trace Dysprosium, a small but critical addition to most of the NdFeB magnet grades produced by Hitachi and the licensees. The Magnequench powders, however, do not contain Dy, so it should be a great fit for Molycorp, much like the JV it has announced with Daido and Mitsubishi in Japan after the proposed JV with Hitachi fell through. The Daido process is exceptionally unique among NdFeB magnets. The base material is like that from Magnequench, and it is pressed in a manner so unlike any I have ever seen that I have dreamed of seeing it someday since I started in magnets so long ago. Both Neo Technologies and the Daido JV allow Molycorp captive sources that do not need still to purchase Dy from Chinese or other non-Molycorp sources.
I have to admit I was initially emotional about this. I even tweeted
"If only Molycorp moved MQ production out of China & Thailand, back to Indiana and everything could go back to the way it was....#dreamon"
Of course, this is not the way it is going to play out from here. Molycorp and Neo Technologies have already made it clear that both factories will remain in place. It will be interesting how the Chinese rare earth mining industry reacts to this. Molycorp plans to import their material into China, transferring to their own division that is currently a significant customer of China's mines. In this New York Times piece, Neo Technologies president "Mr. Karayannopoulos said that within an hour of announcing the deal, Neo Material had begun telling Chinese officials that the company’s merger with Molycorp was consistent with China’s official policy of encouraging rare earth resource development elsewhere and environmental protection in China." While this is true, there has not been much legal importing of rare earth oxides or concentrates into China lately. It is entirely possible while that the Chinese government might seem not to worry about the rare earth industry that exists outside its borders, it may take a stand against the loss of business within its borders, either with customs actions or a significant price drop making the importing material a ridiculous business decision. Or, in that way that every option is possible in China, could just take the position of non-response.
AND then add to this the WTO action that is being brought about jointly by the US, the EU, and Japan, charging that China's export controls amount to WTO violations. The timing is not optimal. In 2011, barely half the export quota (which even expanded controlled classes of rare earth materials to those not previously included, such as alloys) shipped. The prices in 2012 have already begun to decline in face of decreasing demand. Customers who previously relied on rare earth magnets and polishing media, to name two, actively sought alternatives last year. Last year I blogged about an American motor manufacturer that slammed the brakes on all rare earth magnet motors, for instance. Even inside of China, rare earth magnets had become cost prohibitive to the very Chinese industries that one would have believed should have benefited from lower in-country pricing and easier access, like wind turbines. Many of the big names, like Sinovel and Dongfang, were already bringing to market turbines with no or significantly less magnets last year as the prices soared.
Most of all, the non-Chinese rare earth miners would probably appreciate the availability of materials from China to be restricted and priced higher, especially now as many of them are just starting to come online. It's been integral to how they sell themselves to investors. If the WTO case against China is successful, could this hamper these efforts? What would happen if, suddenly, prices were back to early 2009 levels, and the quotas were absent. Already, 2012 has been beginning to look like this, with prices dropping, sometimes a few percent a day, and the demand outside of China not even coming close to the export limits, so those may as well not exist. What does anyone win if they win, in this case?
And we continue to watch.
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