The west is facing a crunch in its rare earth industry with two of its biggest hopefuls facing difficulties. Molycorp, the US-based leader in the industry has recently lost its poster boy CEO Mark Smith and Australia’s Lynas seems to hit more problems every week with its LAMP processing facility in Malaysia.
While both Molycorp and Lynas are being battered by headwinds, China is consolidating its rare earth producers in the north of the country to form mega corporations that can dominate production of the elements.
Already China controls more than 90% of the global production of rare earths and pricing power lies squarely within the Asian country.
The rush by western producers to break the Chinese almost near monopoly over rare earths is starting to get rough with increasingly scarce capital being raised to get the west weaned off its dependence on Chinese rare earths. Both Molycorp and Lynas have been back to the market to raise cash as cost overruns and falling rare earth prices have dented business plans.
Interestingly, we seem to have come full circle to a point in the last cycle where non-Chinese producers were pushed out of the market because of low prices for rare earths.
Chinese costs were so low that Western mines shut, unable to compete with low environmental standards and a centralised policy of state domination of the industry.
Chinese producers are certainly interested in keeping rare earth prices higher over the long term and the government restricted exports through quotas to keep control of the pricing mechanism. But rampant smuggling and market disorder has brought rare earths down with a thump from giddy heights just a year or so ago.
And interestingly, prices of the rare earths have fallen just at the time when western companies needed them to be higher so they could raise capital and complete their last few steps to full production.