Rare earth price could fall after Japan quake: exec

PITTSBURGH Tue Mar 15, 2011 2:47pm EDT

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PITTSBURGH (Reuters) - The aftermath of Japan's disastrous earthquake and tsunami could temporarily ease the rise in rare earth prices, but overall demand is likely to continue to outstrip supply for the next few years, an industry executive said.

Western companies are scrambling to redevelop mines capable of producing the 17 rare earth elements, used in everything from Apple iPads to wind turbines, after China last year began sharply reducing its exports of the materials.

Business in parts of Japan is at a standstill as authorities cope with aftermath of the quake and people worry about the release of radiation from nuclear reactors at the quake-affected Fukushima Daiichi power station.

That has meant a pause in demand for rare earths at one of the world's largest users, the Asian Metal International Rare Earth Summit in Pittsburgh heard on Tuesday.

"We cannot call our customers right now and say, 'Do you want to buy something?' No one is in the mood ... So if 50 percent of the consumption of the world is in Japan and this 50 percent stops for a couple of weeks, or a couple of months, this will be a huge impact on the consumption side or the demand site," said Furkhat Faizulla, marketing manager from Advanced Material Japan Corp. "We will have to see the real situation in Japan in one week, two weeks, but maybe the prices will come down in the coming months."

Overall, prices are likely to remain elevated for the next few years as companies including Molycorp Inc (MCP.N), Lynas Corp Ltd (LYC.AX), Great Western Minerals Group (GWG.V) and Avalon Rare Metals (AVL.TO) work to redevelop mines in the United States, Africa and Asia that were idled at times when rare earth prices were lower.

"You can't just flip a switch to bring a mine online. It takes seven to 10 years on average ... supply is going to be tight for a lot of these rare earth elements in the near term," said Gary Billingsley, executive chairman of Great Western.

CHINA SHIFT?

Executives at the conference also wrestled with the question of whether China, which accounts for more than 95 percent of global rare earth production, but is estimated to hold just a third to half of the world's reserves, would eventually shift to become a net importer of rare earths.

Growing Chinese demand could have that country importing more rare earth than it expects at some point "beyond 2015," Great Western's Billingsley said.

That was a similar to a projection made by Molycorp Chief Executive Mark Smith last week.

Pierre Neatby, vice president of sales and marketing at Canada's Avalon, said China is more likely to turn to importing heavy rare earths, used in magnets, than the lighter varieties, used in glass.

"It would surprise me if China became net importer of light rare earths given the 1,000 year supply I understand is there," Neatby said. "If China does become a net importer of the rare earths, it would be the heavy rare earths."

Two U.S. senators called on the Obama administration on Tuesday to try to block international funding of Chinese mining projects until it opens up its exports.

Billingsley said it seemed unlikely that China would change its stance.

"Because most of the demand is coming from within China and they have less than half of the world's resources, the response is to restrict supply of these materials in order to protect them for use internally," Billingsley said.

(Reporting by Scott Malone, additional reporting by Doug Palmer in Washington; Editing by Tim Dobbyn)

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