LYC 1.51% $6.07 lynas rare earths limited

Lynas a big winner with Honda hybrid engine breakthrough

  1. 8 Posts.

    LONDON, 15 July 2016:
    For every action there is a reaction and never more so than when it comes to industrial commodity supply chains.
    Japanese automotive giant Honda and its technology partner Daido Steel have just announced a materials breakthrough in the electric motors used in hybrid vehicles.
    Starting with the next generation of Freed minivan due to go on sale later this year, Honda will be using a motor that doesn’t need heavy rare earth metals.
    Specifically, it will be the world’s first hybrid engine, one combining a gasoline and electric motor, to dispense with terbium and dysprosium.
    “Major deposits of heavy rare earth elements are unevenly (distributed) around the world (…) thus, the use of heavy rare earth carries risks from the perspectives of stable procurement and material costs,” Honda said.
    A fairly innocuous sounding statement but one that cuts to the heart of the roller coaster history of the rare earths market.
    That price explosion of 2009-2011 was the trigger for Honda to hook up with Daido to look at redesigning the magnets that lie at the heart of electric automotive vehicles.
    But price is only part of the picture.
    The magnets in the Freed minivan will still use another rare earth metal, neodymium, which has experienced the same boom and bust price cycle as its heavier sister metals such as terbium and dysprosium.
    But neodymium is one rare earth metal that is produced in quantity outside of China.
    Australia’s Lynas Corp mines rare earths at its Mt Weld operations in Western Australia and sends them for refining to its Malaysian separation plant.
    In its first-quarter 2016 operations report, Lynas noted that neodymium and praseodymium “remained in high demand from magnet makers in Japan where we maintain over 50% share.”
    Japan’s enthusiasm for Australian neodymium is a result of China’s temporary ban on rare earth exports to its Asian neighbour in 2010, a move that only added fuel to already red-hot prices.
    Although never explicitly stated, the ban seemed linked to a smouldering dispute over the status of the islands in the East China Sea called Senkaku by the Japanese and Diaoyu by the Chinese.
    So when Honda notes the “uneven” geographic distribution of heavy rare earth metals, it doesn’t take too great a leap of the imagination to guess which specific geographical location has been troubling its supply chain planners.
    The price of terbium metal in China is currently 3,475 yuan (RM2,100) per kg, according to Mysteel. This month five years ago it was 26,500 yuan.
    That of dysprosium, again according to Mysteel, has fallen from 15,500 yuan per kg to 1,650 over the same period.
    The year 2011 marked the peak of the rare earths bubble, a price explosion that transformed an esoteric section of the chemical table into front-page news.
    It was a bubble made exclusively in China, the world’s dominant producer across the full spectrum of rare earth metals.
    The country had imposed an export tariff and quota system on its exports in 2009, sending shock waves down a global manufacturing chain which had become increasingly dependent on these weird and wonderful metals for everything from mobile phones to nuclear fuel rods.
    A World Trade Organisation case found against China in 2014 and the country eliminated all export quotas last year.
    But by that time the boom had already turned to bust. Collective thrifting and hoarding by buyers saw demand disappear, while illegal smuggling of rare earths across China’s porous northwestern borders went into overdrive.
    The latter remains a key dampener on prices, which are back at pre-boom levels.
    Chinese authorities have this year launched a new crackdown on illegal mining and have announced a new stockpiling scheme to support the country’s own official producers, many of which are piling up losses.
    Rare earths supply has still not recovered from the excesses of 2009-2011.
    China is still struggling to control its own black market, which is undermining Beijing’s stated aim of becoming a global power-house in materials that feed into a host of evolving technologies.
    Now Honda and Daido have just delivered a tail-wind demand shock to those ambitions.
    The common assumption is that rare earths are irreplaceable in many of their uses.
    Not so apparently.
    And not only have the Japanese companies worked out how to design two rare earth metals out of electric motors, but they have reduced costs by around 10% and weight by around 8% in doing so.
    Starting next month Daido Electronics will begin the mass-production and shipment of the new magnet from a new production line at its plant in Nakatsugawa City in Gifu Prefecture.
    Honda “will continue expanding application of this technology to new models in the future.”
    Good news for the neodymium market. Less good news for the terbium and dysprosium markets.
    These are relatively new metallic raw materials but the salutary lesson from the story is an old one.
    If producers push prices to excess, there will be a demand payback, even if it takes several years to take concrete form.
    Other new-age material suppliers, such as those of lithium, another market where prices are starting to bubble, should take note.
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