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Finding a place in the rare earths race

Finding a place in the rare earths race
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First Published: Mon, Nov 08 2010. 10 32 PM IST

Centre of attention: A worker at a workshop in China smelting lanthanum, a rare earth metal. China currently accounts for 97% of the world’s production of rare earths . David Gray/Reuters
Centre of attention: A worker at a workshop in China smelting lanthanum, a rare earth metal. China currently accounts for 97% of the world’s production of rare earths . David Gray/Reuters
Mumbai: These 17 elements are critical to many industries of the future—from smart phones to hybrid cars to solar panels. There is a worldwide scramble to get hold of rare earths. Prices have soared.
The problem that worries much of the world: China currently accounts for an overwhelming 97% of global production, and it has not been shy of using this dominance as a bargaining chip against other countries.
Centre of attention: A worker at a workshop in China smelting lanthanum, a rare earth metal. China currently accounts for 97% of the world’s production of rare earths . David Gray/Reuters
“Rare earths are vital future resources and we won’t like any country to have a monopoly,” said science and technology minister Prithviraj Chavan at the sidelines of a conference in Mumbai to celebrate the 101st birth anniversary of physicist Homi Bhabha.
The growing international tensions over rare earth supplies has led to the first signs of a new national strategy—to ramp up domestic production, to consider inviting foreign companies to participate in joint ventures (JVs) with public sector units (PSUs) as minority partners and to strike cooperation deals with other governments which are worried about China’s clout in the rare earths game.
India currently has a little over 2% share of global output of rare earths, but that still leaves it the second largest producer after China. To close the gap, the government is firming up plans to triple rare earths production from 2,700 tonnes to 7,700 tonnes by the end of 2011, according to R.N. Patra, chairman of Indian Rare Earths Ltd (IREL), a state-run firm set up in 1950.
Also See | The Rare Earth Story (Graphic) by US Geological Survey
India last increased its production of rare earths in 1995, when output increased to 2,700 tonnes from 2,500 tonnes.
Meanwhile, during Prime Minister Manmohan Singh’s visit to Tokyo in October, India signed a deal to supply rare earths to Japan. This deal comes after China banned exports of rare earths to Japan in protest against the detention of a Chinese fishing boat captain who had strayed into Japanese waters that are claimed by China.
“Rare earths are a cudgel used by China as a weapon of opportunity,” said Jack Lifton, director of Technology Metals Research Llc and a senior fellow of the Institute for the Analysis of Global Security, a US-based think tank. He portrayed the tensions between China and Japan as “the first skirmish in a resource war”.
Though China subsequently denied that it had imposed a ban on exports to Japan, there have been reports that it plans to reduce rare earths exports in 2011 as well as build strategic reserves to support its domestic hi-tech industry.
So, can India compete with China? Lifton said that since India has a long history of producing rare earth metals, it will need to design a strategy on two fronts—domestic resources of rare earths will have to be brought into production and Indian companies will compete with global competitors to secure overseas deposits.
The government may have to lend a helping hand. “Indian businessmen understand this market well, and so I think it is time for the Indian government to promote resource security for India,” said Lifton.
A similar strategy in oil has met with limited success, as Indian national oil companies have lost out to Chinese oil firms in securing oil assets in Africa. But in rare earths, developed nations seem to be showing greater willingness to forge a partnership with India to refine and process rare earths.
India, according to the US Geological Survey, has 3.1 million tonnes (mt) of rare earths reserves.
“At the moment, China has tremendous leverage,” said Brahma Chellaney, professor of strategic studies at the Center for Policy Research in New Delhi. “The good thing is China is not going to fight shy of using its leverage”.
He also said the tensions such as those between Japan and China over rare earths are a “blessing in disguise for India” as they give India a chance to work with countries that do not to succumb to “Chinese blackmailing”.
“More partnerships such as the one between Japan and Vietnam could be seen,” said R.K. Sinha, director of the Bhabha Atomic Research Centre (BARC) in Mumbai.
In another boost to increasing domestic output, Chavan said the government is open to private players forming JVs with state-run companies for extraction and processing of rare earths minerals. He added that “private players could form a JV with PSU companies”, with private players holding a “minority stake” in the JV.
Further, though India does not allow foreign players into the extraction of rare earths, they could, according to Chavan, partner Indian companies in “processing and refining” facilities.
Earlier this month, Toyota Tsusho Corp., the trading affiliate of Toyota Motor Corp., announced that it is already examining deposits in India and BARC’s Sinha said many other companies have also expressed interest.
China’s reserves of rare earths, at 36 mt, is nearly three times that of the US, which has reserves of 13 mt. Beijing’s increased focus on more investment in upstream mining and downstream processing in the last decades has also helped China become a leading producer of rare earths. This, according to Sinha, has left most mines globally unprofitable. That leaves China with 36% of global deposits, but with 97% of production.
Not surprisingly, when China cut its export quotas by three quarters in July, the price of some rare earths shot up sixfold in August and September.
More supplies could come into the market in the future when “a non-Chinese producer opens production, such as Lynas Corp. Ltd or Molycorp Minerals Llc,” according to Lifton. Lynas is building a rare earths project in Australia while Molycorp has the world’s largest non-Chinese deposits of rare earth metals.
“The prices of the rare earths are far too high…fuelled by speculation and ill-informed predictions of long-term shortages. Rare earth prices will come down,” said Lifton.
State-run IREL is restarting exports of rare earths late next year, the first time since 2004, after the ministry of environment and forests on 20 October gave clearances to start work on its 5,000 tonne capacity plant in Orissa.
“The estimated investment is Rs140 crore for a 10,000 tonnes per annum monazite processing plant that will produce 5,000 tonnes REO (rare earth oxides) at Orissa Sands Complex, near Gopalpur in Orissa,” said Patra.
IREL expects the plant to be ready by late 2011, which should help India triple the output of rare earths. The company was forced to shut down its processing facility at Aluva in Kochi in 2004 due to lack of market competitiveness.
“Cheaper materials from China flooded the market and many stand-alone companies realized that they could not compete against the Chinese,” said BARC’s Sinha.
Before closing down its facility in 2004, IREL produced 1,500 tonnes of rare earths, of which about 1,300 tonnes was exported, mostly to developed countries such as the US, Japan, Europe and Canada. The country’s domestic demand was 200 tonnes in 2004. Patra estimates domestic demand has increased since then.
Kerala, Orissa and Tamil Nadu account for nearly 95% of the country’s production of rare earths. PSUs, including IREL, Kerala Minerals and Metals Ltd (KMML) and Travancore Titanium Products Ltd (TTPL), are the three leading state players in rare earths production. Although KMML and TTPL are not involved in export of rare earths directly, the two firms produce value-added products such as titanium dioxide pigment, titanium tetrachloride, zircon, etc., which are also exported.
Private companies, including Cochin Minerals and Rutile Ltd (CMRL), which produces synthetic rutile and ferric chloride, and Chennai-based Beach Minerals Co. Pvt. Ltd and V.B. Minerals and Resins Pvt. Ltd are the leading private rare earth producers in India.
One of the biggest roadblocks for mining companies is getting environmental clearances for rare earths production. Mining rare earths has raised green hackles because of the mildly radioactive “slurry tailings”, a result of the presence of thorium and uranium in rare earth ores.
The toxic acids used in the refining rare earths is another area of concern. A project proposed by CMRL is hanging fire. The company first approached the Kerala government in 2005 with a proposal for a Rs2,820 crore mineral complex in Alappuzha district. CMRL is to have a 54% stake in the project, partnering with IREL (with a 20% stake) and the Kerala State Industrial Development Corporation (26%).
However, the project is yet to get off the ground. Sasidharan Kartha, managing director of CMRL, sees good prospects for his project after the Prime Minister’s assurance to Japan that India would supply rare earths to the country.
Ajayan in Kochi contributed to this story.
varun.s@livemint.com
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First Published: Mon, Nov 08 2010. 10 32 PM IST