When Monopolists Over-Reach
Posted by Alana Wilson on 3/27/2014 4:36:48 PM
By Dr. Kenneth P. Green
Mining.com has an interesting article about an impending price war and renewed global competition over a group of elements known as the “rare earths.” The rare earth elements are a group of 17 hard-to-pronounce elements (how do you say “ytterbium?”) that are used in a broad array of high-tech products. The rare earths aren’t actually all that rare on a mass scale around the Earth, they are rarely found in a concentration that’s worth mining, and they’re often mixed in with other elements that complicate mining and refining.
The reason people care about the rare earths is that they have become increasingly important in the manufacturing of high-tech equipment over the same span of time that the market has largely been cornered by China, which now controls about 90% of the market for rare earth elements (it was even worse when I wrote about this in 2010, when China controlled some 97% of the market).
The central thrust of the article involves the impact of a WTO ruling against China with regard to its rare earth export policies, but what I find more interesting is a discussion of changes in the world market for the rare earth elements, and that is that global markets seem to be doing what they usually do: they’re responding to monopolist pricing by finding ways to compete, either by adapting technology, or by re-building their own supplies. As Mining.com reports:
Worries about the restrictions and China's monopoly of production sent prices for the 17 rare earth elements – use a variety of industries including green technology, defence systems and consumer electronics – into the stratosphere from 2008 onwards with some REEs going up in price twenty-fold or more.
That reignited interest in the sector with dozens of explorers active around the globe making major discoveries from Canada and Greenland to Madagascar and Malawi.
Canada's rare earth industry's stated goal is to corner 20% of the global rare earth market by 2018.
Molycorp's (NYSE:MCP) Mountain Pass mine in California is targeting production of 20,000 tonnes (with ultimate capacity of double that) and Lynas Corp's (ASX:LYC) Mount Weld mine in Australia and plant in Malaysia is ramping up production.
Prices have now come back down to earth with most REEs dropping in price by 70% or more after peaking in 2011.
This is gratifying, but not surprising, after all, this is what competitive global markets do, as I pointed out in a New York Times piece in 2010:
And even if China causes a shortage of rare earths, it will be a temporary shortage, since the rising prices for rare earth elements will serve as an incentive for others to enter the market, leading to greater supply. The United States, for example, has 13 percent of known rare earth reserves and could get back into the production and refining business.
On the other hand, 4 years strikes me as a pretty fast response to price spikes in a global commodity like the rare earths, so perhaps it is surprising after all. Read the whole article, by Frik Els, here.