Prospects look bright for Kazakh rare earth project

November 12. Central Asia Newswire

by Martin Sieff

Prospects look bright for Kazakh rare earth projectWill Kazakhstan be able to find enough deposits of rare earths to become a significant global player as prices soar? It seems likely.

And if that happens, do not expect Kazakhstan to compete with China. Look instead for Kazakhstan to reach a highly profitable cartel agreement to share the global market with its giant eastern neighbor.

China has dominated the rare earths global supply, but now it is drastically curtailing exports, throwing high-tech economies and major corporations in the United States, Germany, Japan and South Korea into panic. Rare earths are exceptionally rare elements and minerals that are essential for many high-tech industrial processes. They are vital, for example, to produce Blackberrys, televisions and hybrid cars.

Rare earths can be produced from uranium tailings, which means countries rich in uranium are the most likely places to find them, or the minerals and elements from which they can be extracted. And that automatically moves Kazakhstan to the top of the list.

It is already the largest uranium producer and exporter in the world, and as the ninth largest country in the world with a territory of 1 million square miles, there are plenty of places to look for rare earths in it.

Also, as China’s dominance of the global market to this time confirms, rare earths appear to be concentrated in their geological distribution in the heart of north-Central Asia.  That makes the neighbors of western China – Kazakhstan and Kyrgyzstan – the prime locations to look for them.

The Sumitomo Corporation, the third largest trading house and a major corporation in Japan, certainly thinks so. As Central Asia Newswire (CAN) reported Wednesday, they announced this week that they were launching a new joint venture (JV) – the Summit Atom Rare Earth Company – with Kazatomprom, Kazakhstan’s national nuclear corporation, to make rare earths from uranium tailings.

Up to now, China has not only dominated the global rare earths supply, it has effectively monopolized it. More than 90 percent of rare earths produced and sold every year come from there.

But the hunger of China’s own rapid and colossal industrial expansion and high-tech progress is now swallowing up most of that production. In July, China rocked the world market by announcing it was withholding nearly three-quarters of its previously announced export quota of rare earths for the second half of this year to supply its own domestic requirements. The quota figures were slashed by 72 percent.

As a result, over the past half-year global prices for rare earths have soared by 700 percent. As Bloomberg News reported this week, corporations such as Glencore International AG, Stans Energy Corp. and Greenland Minerals & Energy Ltd. have led the rush to prospect and open new rare earth mines, or reopen old ones.

The term “rare earths” refers to 17 chemically similar elements, including neodymium and dysprosium. Neodymium oxide is vital for mini-hard drives in laptops and headphones in Apple’s iPod. Its price was just over $19 per kilogram (2.2 pounds) a year ago. Now that has risen to $80 per kilogram (2.2 pounds).

This is good news for Summit Atom and the Kazakhs. They hope within 18 months to two years to mine up to 1,100 tons of rare earth concentrates per year for Japanese customers, Bloomberg reported this week.

It could boost its supplies to a massive 10,000-15,000 tons by 2014-2015, the report said. That would be the equivalent of 10 percent of the entire world’s annual demand today. And global demand is anticipated to almost double to an estimated 225,000 tons by 2015.

But if Kazakhstan does succeed in becoming a major global producer of rare earths, as seems very likely, will that propel it into a potentially nasty trade rivalry with China? After all, Japan’s relations with China have soured over this issue alone over the past six months.

That is unlikely to happen between China and Kazakhstan. The two countries enjoy excellent trade and diplomatic relations and they are improving all the time. Kazakhstan just signed a new far-reaching deal to supply high-grade uranium oxide to China to fuel its next generation of civilian nuclear reactors. China plans to build 500 of them in the next 30 years.

It is much more likely that Kazakhstan’s current coordination of its oil exporting policy with neighboring Russia will frame Kazakhstan’s future dealings with China on rare earths production and exports: Kazakhstan formed a new customs union with Russia and Belarus this summer and quickly imposed an export tax on its own oil production as the Russians wanted – although it was only around 8 percent of the far higher tariffs the Russians impose on their own oil exports. But this relatively mild measure alone will net well over $1 billion extra per year in revenues for Kazakhstan.

Similarly, Kazakhstan looks likely to carefully coordinate its own rare earth exports to the global market with Beijing. The Chinese did not impose their latest rare earth export restrictions to destroy high-tech production of industries around the world, but just to give their own industries the first bite at the raw materials they needed. They are likely to welcome the Kazakh increase in production as a way to ease international complaints about their export cutbacks. The Kazakh move will also create a new potential supply that the Chinese can look to in the event of shortfalls in their own production.

In the longer term, the Kazakhs may even coordinate their global sales price with the Chinese and impose some form of export tariff on it as they have done, with relative mildness and restraint, on oil. But that doesn’t look likely or necessary in the immediate future. With rare earth commodity prices going through the roof around the world, there’s no need to put any new taxes on them.

http://centralasianewswire.com/Kazakhstan/Prospects-look-bright-for-Kazakh-rare-earth-project/viewstory.aspx?id=2321

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