June 28, 2011 10:37 ET

Rare Earth Elements Market Value Expands as Supplies Contract

NEW YORK, NY--(Marketwire - Jun 28, 2011) - While demand continues to expand, rare earth (RE) element supplies have begun to contract largely due to reduced export quotas from China. Since 2005 China has restricted rare earth exports, reducing them each year. Thus far in 2011, they have been reduced by 35 percent from 2010. The 17 rare earth elements comprise the largest chemically coherent group of elements in the periodic table.

Since the beginning of 2010, RE prices have increased dramatically. Demand for rare earths continues to grow, particularly for alternative energy applications such as wind energy, battery storage, and hybrid-electric vehicle (HEV) motors. Rare earths are also critical for myriad advanced technology systems and are essential materials for the manufacturing of consumer electronics such as cell phones, computers, display systems, and DVDs. Rare earth elements are also used as phosphors in LCD panels and fluorescent and LED lighting. REEs are widely used in batteries, ceramics, fuel cells, and superconductors. While REs are essential ingredients for these and other advanced technologies, they are also required for such things as flints for cigarette lighters.

The hybrid vehicle application market is perhaps the largest RE growth market. Demand for crude oil supplies is greater than the alternative energy technologies that are being developed. Increasing demand for crude oil supplies is also affecting the price of gasoline, which makes driving more expensive. In addition, the adverse environmental effects of fossil fuels are becoming more problematic as more automobiles are put in service. Hybrid and electric vehicle markets significantly impact rare earth demand because these vehicles use a considerable amount of rare earth materials in mass application.

For most of the 21st century, the size of the rare earth market was about $1 to $2 billion. With the recent and rapid price increases originating from Chinese export restrictions and absence of other RE resources, the value of this market is now about $10 billion, and is expected to keep rising. Historically, China began producing rare earths cheaply in large quantities in the 1990s. This market led to the Mountain Pass mine in California, which had been a preeminent resource of REEs for over 50 years, to close down in 2002.

That the Mountain Pass mine is gearing up to reopen, set for late 2011, in the current RE market is not surprising. It will be the first non-Chinese rare earth mining operation to become operational in this new and competitive market. Presently, there are more than 150 other active projects worldwide seeking to develop new sources of rare earths. The time and money to develop a rare earth mine remain market challenges.

"Molycorp (the owner of Mountain Pass mine) needed $533 million in new funding in July 2010 to bring Mountain Pass back into active production -- and that is for a mine that used to supply most of the world's needs for rare earth elements," says Bernie Galing, SBI Energy analyst and author of Rare Earth Elements Markets Worldwide, an SBI Energy market research report.

"And it can take up to 15 years to develop a site for mining. As a result, only a relatively few new REE mining operations will enter production before 2016. By 2020, however, a number of rare earth mines outside of China should be in operation. The shake out," says Galing, "is too many rare earth mines can adversely affect the entire industry by driving prices down. As such, only about half a dozen or so large rare earth mining operations (outside of China) will be sustainable over the long term. Long project development time and steep capital mean economic feasibility will be limited to only the highest producing mines."

SBI projects the demand for rare earths will increase through 2020 for all seventeen rare earth elements. Demand for rare earth magnets will be strong as large rare earth magnets are critical in the design of the most modern on- and off-shore wind turbines, both of which are seeing significant growth worldwide. Wind turbines development is estimated to grow at over 13 percent CAGR through 2020, while the hybrid and electric vehicle market is expected to grow almost 50 percent by 2015-2016.

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