Rare earths fall as Toyota, GE shift to alternatives

Written by Bloomberg | New York | Updated: Sep 30 2011, 07:28am hrs
Rare earth prices are set to extend their decline from records this year as buyers including Toyota Motor and General Electric scale back using the materials in their cars and windmills.

Prices for cerium and lanthanum, the most abundant rare-earth elements, will drop by 50% in 12 months, Christopher Ecclestone, an analyst at Hallgarten & Co in New York, has forecast. Neodymium and praseodymium, metals used in permanent rare-earth magnets, may fall as much as 15%, he said.

Makers of electric cars, wind turbines and oil-refining catalysts have sought to reduce use of the metals after China, which supplies more than 90% of the market, said in July 2010 that it would cut exports and clamp down on the industry. That boosted prices, encouraging mining companies to develop new prospects and buyers to find alternatives.

If you think you can keep raising the prices for those materials and still keep your customers, youre crazy, Jack Lifton, co-founder of Technology Metals Research, said in a telephone interview. The principal customer for rare-earth metals is a global automotive industry using rare-earth permanent magnets. That industry will engineer this stuff out.

Declines in August and September pared a five-month, fourfold surge that brought the average price for eight of the most widely used rare-earth oxides to a record 396,850 yuan ($62,068) a metric ton in July, data from consultant Shanghai Steelhome Information show. The average price declined 13% from its July peak as of September 27.

The 17-member Bloomberg Rare Earth Mineral Resources Index has dropped about 41% in the last three months, led by a 60% decline in Montreal-based Quest Rare Minerals.

Rare earths have been pushed lower because of selling by speculators, Michael Gambardella, a New York-based analyst at JPMorgan Chase & Co, said in a report last week. Tsunami-related disruptions in Japan and dumping of unpermitted material in China have undercut prices, while industrial substitution has driven demand destruction, said Sam Berridge, a Sydney-based analyst at Royal Bank of Scotland Group.

A greater focus on recycling and substitution, particularly by Japanese consumers, has resulted in tightness of demand easing somewhat for the lighter rare earths, Berridge said.

Rising prices for the light metals, such as neodymium and lanthanum, have prompted automakers including Toyota, Asias biggest automaker, to look at reducing the use of relatively powerful and expensive rare-earth magnets in their vehicles. Some Toyota vehicles will be built with an induction motor, which doesnt use rare-earth magnets, said John Hanson, a Toyota spokesman in California. Moving from a fixed-magnet motor to an induction one is a huge savings with regard to rare-earth metals, Hanson said over phone.

The Japanese are leading the push to replace, reduce and recycle their rare-earths consumption, said Dudley Kingsnorth, chief executive officer of Perth-based advisory Industrial Minerals of Australia. Users are recycling rare earths wherever they can, using them more efficiently, particularly in the magnet industry where they are producing powerful magnets with smaller volumes.

General Motors, the largest US automaker, plans to sell a Chevrolet Malibu Eco next year that uses an induction motor, and otherwise cut down on magnets that use a lot of rare earths.

The magnets are like Gods gift to electric motors, Pete Savagian, GMs chief engineer for electric motors, said. But we dont always need that level of magnet. Even at prices we saw few years ago, theres a more economic alternative, albeit at slightly less efficient outcome.

The largest portion of demand for rare earths, one third, comes from generating electricity. In August, GE announced the development of wind-turbine generators that will reduce dependence on the rare-earth materials prevalent in so-called permanent-magnet machines. Some current offshore wind turbines may contain as much as half a ton of the metals.