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Rare-Earth Complaint May Backfire for U.S., Lifton Says

A complaint filed at the World Trade Organization over Chinese rare-earth export quotas may backfire on the U.S., according to Jack Lifton, a consultant who advises rare-earth companies.

If the WTO compels China to raise exports, it will “create a monster competitor” to Molycorp Inc. (MCP), the sole U.S. rare-earth producer, Lifton, co-founder of Technology Metals Research, said in a telephone interview yesterday. “Why do they want to do that?”

The U.S., the European Union and Japan requested consultations with China, President Barack Obama said yesterday. Such talks are a precursor to asking the WTO to rule on the issue. China, which accounts for at least 90 percent of global rare-earth supplies, has curbed output and exports since 2009, causing prices to soar. The 17 chemically similar metallic elements are used in applications ranging from wind turbines to guided missiles and hybrid car batteries.

Molycorp owns the Mountain Pass mine in California, the largest rare-earths deposit outside of China. The U.S. company is restarting the mine and is expanding its capacity. Molycorp is also building a center at the site to process the minerals.

While the U.S. has Mountain Pass and other rare-earth deposits, it lacks sufficient manufacturing capacity to take the commodities and make them into rare-earth products such as magnets, Lifton said. Any change in Chinese exports may benefit Europe and Japan, where there is more manufacturing capacity, he said.

Neo Acquisition

“We don’t have the rest of the supply chain,” Lifton said. If China increases exports, “the U.S. gets nothing, Molycorp gets nothing,” he said.

Molycorp said March 8 it agreed to purchase Neo Material Technologies Inc., a Canadian processor of rare earths and magnetic materials, for about C$1.3 billion ($1.31 billion). The deal will add to Molycorp’s rare-earth manufacturing capability and expand its access to customers in China. Neo has two rare-earth processing plants in China.

Molycorp fell 2.7 percent to $30.01 at the close in New York. The stock has dropped 34 percent in the past 12 months. The Bloomberg Rare Earth Mineral Resources Index, which tracks 21 rare-earth companies, fell 40 percent in that time.

China curbed rare-earth supplies to address environmental concerns and to extend control over more of production for domestic consumption. The nation is already planning to consolidate its rare-earths industry into two to three companies, Shanghai Securities News reported March 12, citing Miao Wei, Minister of Industry and Information Technology. Miao didn’t give a time period for the move, the publication said.

Scarce Deposits

While the rarest of elements are more common in the earth’s crust than gold and the most abundant are about as well-represented as copper and zinc, they only occur in concentrations that are economic to mine in a few places, according to the U.S. Geological Survey.

The WTO may find that China is entitled to protect a limited rare-earth resource, said Jonathan Hykawy, an analyst with Byron Capital Markets Ltd. in Toronto. One source of China’s rare earths is a type of mineral deposit only found in a handful of places on earth, he said.

“They have an argument that it’s a limited and dwindling resource and they have no option but to try to protect it,” Hykawy said in a telephone interview yesterday.

To contact the reporter on this story: Sonja Elmquist in New York at selmquist1@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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