The U.S. Department of Energy (DOE) tells us, in its 2010 Critical Materials Strategy , that we are on the cusp of a clean energy revolution. That revolution is visible from my window at night, in 96 blinking red lights, and growing, that mark the location of a wind farm on the horizon, soon to be capable of generating 180 MW. I have yet to see a Volt or Leaf on the road, but Priuses abound.
DOE tells us that clean energy production by wind turbines and solar cells; and consumption by vehicles (electric and hybrid) and energy-efficient lighting, depend on a handful of critical materials, and our dependence is likely to grow in the coming decades.
Of these, DOE determines that five rare earth metals, dysprosium, neodymium, terbium, europium and yttrium, are the most important to clean energy and carry the highest risk of problems in supply. (See Charts Below)
By Supply, We Mean Production
As DOE and others tell us, the ‘rare’ in rare earth metals, or REE (rare earth elements) for short, is not because they are rare. As an article by Kidela Capital Group notes , REE mining started in India and Brazil, then shifted to South Africa and the United States.
Continuing through the 1980s, one mine in the United States, Molycorp’s Mountain Pass mine in California, became the world leader, producing more than 70% of the world’s REE’s. By the 1990s, exports from China came to dominate the market. As DOE tells us, REEs can be found in many countries. China, however, now produces 97% of the world’s REEs.
He Who Produces Cheapest Wins
It’s doubtful that, before the 1990s, China was consciously positioning itself towards world domination in REEs. Clean energy has only recently come to the forefront, and Mountain Pass had been recognised by the United States Geological Survey as the greatest known concentration of REEs. But, faced with abundant production from China, and increasing operating costs, Mountain Pass faced the same economic challenges that threatened or shut down US producers of other metals, tungsten, cobalt, molybdenum, antimony and others.
In 1998, Mountain Pass closed, following a spill into a dry lake of process waste water carrying uranium and thorium. Resuming production won’t be cheap, but Molycorp believes, with new capital investment, their operation will compete with China, and do so with process controls that will eliminate their past environmental problems [2,3].
Environment,The Un-level Playing Field
The realisation that there is environmental cost to cheap metals has begun to dawn on some. In December of 2010, PBS touched on the issue with a news piece entitled “Are Rare Earth Minerals Too Costly for Environment?” , which focused on the environmental problems of the REE industry in China. China responded with an announced crackdown on small, “rougue” mines, as reported by the New York Times , and with pronouncements of increased environmental standards and future reductions in exports [6,7,8].
Are they too costly? Dysprosium, the top of DOE’s leader board for critical materials in magnets, has risen from $6.50 a pound in 2003 to a current price of $132 a pound. Yet, as Eamon Keene points out in a post , the 50 grams of dysprosium oxide in a hybrid car amounts to $15, or 1/2000th of the car’s price.
Clearly, we can afford to pay more for more environmentally sound production of this metal. Unfortunately, that hasn’t been the developed world’s track record. Markets gravitate toward the cheaper sources of a resource, be it energy, labour, or material, and it’s often only later we learn about the unseen environmental cost.
Stability Needed for Investment
With various news articles declaring the shortage in REEs, and DOE announcing its Critical Materials Strategy, the scramble is on to find new resources, and get the existing ones back up and running. But, as any developer of a copper, molybdenum or other metal project knows all too well, attracting investment requires some level of stability and predictability in prices.
One need only look at the absence of any new coal-fired power plants in the US last year to see what uncertainty will do to investment. In the US, we can look at Molycorp’s capital costs, in the 100s of millions of dollars, to see that even re-opening an existing operation is not cheap, that is, if one wants to do so with any measure of environmental standards [10,11].
In the developed regions of the world, any new mine today faces a much longer lead time and greatly larger capitalisation than just 40 years ago. Without price stability, the advantage lies with those willing to accept or overlook the environmental cost.
Power of Substitution
Then, there’s the age-old way to beat a supply problem: substitute. Copper too expensive for wires, use aluminium. Not enough aluminium for cans, use plastic bottles. Not enough plastic for disposable diapers, now we may have a crisis.
Earlier this month, Toyota announced their strategy for the supply problem in REEs: to develop dysprosium- and neodymium-free motors for their hybrids and electric cars [12,13]. The news dragged on Molycorp stock, now down over 25% from its 52-week high, an indication that stability for REEs, as well as other commodities, may not be coming anytime soon.
Authored by Bill Willoughby, Jan. 15, 2011
(Please visit Bill’s original post for reference materials contained herein.)
Related Reading: Seventeen Metals: “The Middle East has oil, China has rare earth”
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Economic Forecasts & Opinions (EconForecast)