Biz digging deep for rare earths

Rocky ride for manufacturers of consumer electronics and professional filmmaking equipment

Manufacturers of consumer electronics and professional filmmaking equipment have been on a rocky ride in the last several years because of the stunning ups and downs in the pricing of rare earths. And relief — should it come — looks to be years away.

Rare earths are a group of 17 chemical elements that actually aren’t that rare, but they are tremendously difficult to mine and process. Often a great deal of pollution is generated in the process.

Right now China supplies somewhere between 95% and 97% of the world’s requirements for these elements, depending on the expert making the estimation.

The influence of these little metals could not be bigger.

“In the film industry, there are some interesting overlaps with what we’ve looked at in the energy industry,” said David Sandalow, acting undersecretary for energy and assistant secretary for policy and international affairs with the U.S. Department of Energy.

“For example, magnets are a very important part of many energy technologies and also a key part of hard disc drives used in recording and transmitting film and television footage,” he said.

“Those magnets often rely on rare earth elements including neodymium and dysprosium. Magnets are also found in microphones and speaker equipment used in sound recording. So basic film and television equipment relies on magnets, which in turn often rely on rare earth elements.”

Though China has emerged as the dominant exporter of rare earths in the last 10 years or so, it’s their actions in the last two years that have put everyone on edge. There have been stated caps on exports and implications that the country needs its rare earth supplies for its own industry.

While China may have its own plans for its rare earths, that doesn’t change the fact that the implications for the film industry don’t stop with hard disc drives and magnets

Camera lenses use a rare earth element called lanthanum, which is also used in rechargeable batteries. There are also rare earths in computer and TV screens. They use the heaviest — and hardest to get — rare earth elements like europium and terbium.

“What’s interesting about the huge price fluctuations in the market in 2011 was that some of these rare earths went up in price by hundreds of percent but there was never an actual shortage of them,” said Gareth Hatch, co-founder of Technology Metals Research, a company specializing in analysis of the rare earths market. “It was just the rumors that China might start restricting supplies and statements that there would be a cap that sent the prices to the ceiling.”

Though many electronics manufacturers are reluctant to comment directly on how rare earth price fluctuations and how China’s control over the bulk of supplies has impacted them, Samsung did supply a statement through its spokesperson saying that rare earths are important in its research and development process.

But what about supply chain issues?

“We also work closely with our business partners to ensure a smooth and stable supply,” the Samsung statement reads.

Andrew Jones, director of speaker engineering for Pioneer, puts it more directly. “When you’re designing something like speakers for a computer where the profit margin is 10¢ or 20¢, the fluctuation in price of the rare earth neodymium that we use can just wipe that out,” Jones said. “And it was impossible to guess what the price of neodymium was going to be for a long time.”

Neodymium is used to make speakers light in weight and small. When the material became pricey and hard to get, Jones had to rethink many of his designs or let go of them altogether if it became too risky to rely on this rare earth to make his plans work.

And when lightweight speakers — which could be important to everything from concerts to movie theaters — are hard to come by because of this rare earth, then lots of other costs increase, too.

“Shipping costs, costs to mount heavier speakers, all of that is more when the speakers weigh more,” Jones said.

Understandably the U.S., Japan and Europe have no interest in seeing the sorts of price spikes that happened in 2011, which is when they all joined to challenge China in negotiations at the World Trade Organization in March.

When those talks failed to get them anywhere, they joined again on June 27 to ask for a dispute settlement panel to be formed with the hope of dismantling export duties and quotas on rare earths.

China was not always the singular force in this market. In the 1990s and earlier the Mountain Pass Mine in California was heavily involved in the production of rare earths. That mine was abandoned about 10 years ago when rare earths were not profitable enough to warrant keeping it open after China flooded the market with its own rare earth exports, according to Jim Sims, VP of corporate communications for Molycorp, the company that is working to reopen Mountain Pass.

“It’s taken us a long time to reopen and ramp up in a way that’s environmentally-friendly,” Sims said. “We’ve also had to go out and find the talent — engineers and such — and then essentially train them in the area of rare earths because there’s a shortage of people in this country who are experts in this area and that’s not the case in China.”

But even when the Mountain Pass mine is fully online it will probably only be able to supply about 30,000 tons of rare earths. The world demand is between 120,000 and 130,000 tons, according to Sandalow.

Despite the gap between global need and the amount Mountain Pass can supply, Sandalow still believes that U.S. mining is important and can help stabilize the supply and prices of rare earths. But it’s far from an easy or fast fix, according to some analysts.

“It will make a dent in the demand but you have to remember that it’s taken them years to get to this point,” said Hatch. “It will probably take years more to get other mines up and running in places like Australia and South Africa and in the meantime if you’re making camera lenses or computer equipment, you’ll have to deal with China to get the materials you need.”

In a strange throwback to California’s own gold rush, geologists have been dispatched to the four corners of the earth by companies like Molycorp in the hope that they can discover other deposits of rare earths as bountiful and significant as China’s stash. What they find and whether they find it soon enough to stabilize the market has yet to be seen.