The market for Rare Earths is completely out of whack. It’s due to distortions from the Chinese monopoly. The West has spent the past 20 years sitting on its collective butt not understanding the seriousness of this strategic resource-based issue. The chickens have come home to roost.
A few weeks back, I alerted the subscribers of my investment letter, Energy & Scarcity Investor, that the Chinese would be ramping up their stockpiling of Rare Earth products. The very next day, news hit the wires that Rare Earth prices are skyrocketing. Dysprosium oxide prices, for example, doubled in the first two weeks of June. Price and availability are going nuts.
Beryllium prices are not on a tear…yet. But I am very bullish about the long-term prospects for this “minor metal.” The Daily Reckoning faithful may recall my column from June 7 entitled, “Beryllium…Even Sexier Than it Sounds.” I mentioned a couple of beryllium plays, while also asserting, “The rare earths are one of the very few industries that possess robust long-term, growth potential, even if global economic activity continues to disappoint.”
Well I’m back today to pound the drum again on this unique rare earth. Beryllium demand might receive a significant bump over the next few years, if a developmental nuclear energy technology takes hold. This one could be a game-changer.
Beryllium has phenomenal heat-flow characteristics. It cools off very quickly. So take that idea, and now mix beryllium with uranium. You can build fuel rods with much greater ability to transfer heat away. That is, you can heat up the fuel rods and they’ll cool down a lot faster. In theory, therefore, if you exposed hot beryllium alloy fuel rods to air, they wouldn’t melt down on you.
This is what did NOT happen at Fukushima, Japan, with the old-technology fuel rods that are zirconium-clad uranium. The Japanese rods – as with all fuel rods, everywhere across the world – held the heat and needed cooling water. When the system lost the cooling water, the Japanese plants experienced a series of catastrophic meltdowns. Big problems for a long time to come.
Researchers at Purdue University, Texas A&M and MIT are working on making the beryllium-uranium metallurgy work. It’s not as easy as just adding a bit of beryllium to the uranium melt. It’s a much more complex engineering process than that. There’s a lot of research ahead. But at this stage, it’s very promising. The research is yielding excellent data.
How long will it take to get the beryllium idea running in the nuclear field? It’s hard to say just now. But the up-side is that if beryllium winds up in the nuclear fuel cycle, it’ll increase global beryllium demand by an order of magnitude.
Materion (NYSE:MTRN), a company with large beryllium resources and extensive processing abilities, is one that stands to benefit from rising beryllium demand…and rising prices.
There’s a lot of shaking going on throughout the Rare Earth space. For the longest time, the spotlight has been on the two companies closest to production. That’s Lynas Corp. (ASX:LYC), with its mine in Australia and its plant in Malaysia. And Molycorp, which is rebuilding its facilities in California.
If you read the generalized reportage about Rare Earths in the mainstream business press, a lot of it is pretty uninformed. The reporters just don’t get the Rare Earth business. Not long ago I saw an article under a globally-recognized news feed, along the lines that Lynas and Molycorp will produce a large volume of Rare Earths by 2013 and the currently-tight world markets will settle down. Ergo, Rare Earth prices will fall.
Oh really? That sort of analysis is entirely wrong.
Lynas is having problems with its plant in Malaysia, and will likely not make the deadline of November 2011 for first runs of RE product – mostly lower-priced “light” Rare Earths by the way.
And Molycorp’s “new plant” in California is still a bare patch of ground where they’re pouring concrete footers. There’s no floor. There’s no structural steel. There’s no roof. There’s no new equipment installed. Nothing is running, in any industrial sense. And it’s halfway through 2011.
So neither Lynas nor Molycorp are close to producing a final product and selling it.
Furthermore, in a general, it’s hard for any one company to be fully integrated in the Rare Earth space, from mines to final end product. Mining ore, crushing and concentrating is the first step. Then there are numerous intermediate steps to upgrade the concentrate. There’s downstream refining. Then there’s cranking out the final product.
Each one of these steps takes a high level of understanding about the Rare Earth chemistry and mineralogy. It requires high levels of technology, strong managerial competence and plenty of financial depth.
When I see the hype that has surfaced about Lynas and Molycorp, it seems ridiculous to believe that the new-design, new-build, new-process will work seamlessly. Somebody will just cut the ribbon on the front door of the factory and then start pouring ore into one end of a big, magic machine.
A lot of people in this world know how to drill an oil well, then refine and deliver refined products to the marketplace. But the Rare Earth business is different. It’s relatively small, and the Chinese dominate 97% of it. Here in the West, we have to rebuild our intellectual capital in Rare Earths expertise, as well as new-build every facet of Rare Earths production – from mining to logistics to refining to end-product fabrication.
The Rare Earths business is not easy. The successful players will have to do many things right, with few glitches, and be really competent. At the same time, the early players stand to make a lot of money.
Keep a very close watch on this unique corner of the commodities markets.