The momentum that the globalization of the rare earths market has gained over the past two years is set to be highlighted as investors await the announcement that Japan will begin importing rare earth elements (REEs) from India.
The announcement is expected to be made when Prime Minister Manmohan Singh visits the Asian nation next month to sign a new agreement under the continuous Bilateral Strategic Dialogue Framework. The move once again underlines the manufacturing giant’s intention to diversify its rare earth supply base.
Indian media sources stated that the umbrella pact is expected to start the joint development of rare earth metals in India; however, it is also thought to be a politically-strategic move aimed at strengthening trade relations in what Singh has labelled a “transformational” relationship.
Japan “developing alternative sources of rare earths”
“Against the backdrop of successes of existing collaboration between the two countries in rare-earth resources, a new and more extensive agreement was on the cards during Prime Minister Manmohan Singh’s official visit to Japan scheduled for November,” a senior government official told Mining Weekly. “The proposed agreement would aim to expand current collaborations that ensure supplies of rare earths to Japan from Indian resources. The next stage would be to enhance the flow of technology and leverage collaboration in developing resource bases in third countries.”
“In the process, India too would benefit from Japan’s $1.5-billion corpus earmarked for developing alternative sources of rare earths in the wake of the country’s disputes with China, the virtual monopolistic supplier of rare earths to the world,” the official added.
Many view the move as a potential safeguard against a possible embargo by China amid the Japan-China territorial dispute over the Senkaku Islands. Earlier this month, tensions rose when Japanese Prime Minister Yoshihiko Noda confirmed that Tokyo is unwilling to compromise on its claim to the uninhabited islands. This dispute is threatening to damage the countries’ $340 billion trade relationship.
Analysts feel that an already-fragile REE market is likely to be affected by the standoff as persistent rumors suggest that Chinese rare earth producers could ban exports to Japan, dampening Japanese manufacturing activities.
Pundits forecast that the agreement could result in India supplying 4,000 tons of rare earths to Japan, or approximately 15 percent of the country’s annual needs.
A bold statement
Toyota (TSE:7203) recently announced that it has developed a method to manufacture hybrid and electric vehicles without the use of REEs; while statements like that have become more commonplace, the impending agreement with India is by far the boldest statement that Japan, the world’s largest importer of rare earths, has made in terms of its desire to wean itself away from China, the world’s largest supplier.
While investor attention will likely be centered on what this move could mean for Japan-China relations, analysts will also be paying close attention to India in what is being hailed as a significant step forward in its attempt to ramp up REE production.
A steering committee by secretary mines was established in 2010 and was tasked with bringing India back into the fold as a major global supplier of REEs. The country recently set itself the target of having a monazite processing plant up and running by December of this year. Monazite is a mineral that contains rare earth metals like cerium, lanthanum, neodymium and praseodymium.
Meanwhile, Indian Rare Earths, a government-owned firm, has been awarded the rights to mine REEs in Odisha after a survey by the Atomic Minerals Directorate for Exploration and Research revealed that it contains deposits of REEs. Until 2004, India was actively involved in building its REE production capabilities, but suspended operations when it could no longer compete with lower Chinese prices.
There are also examples of pre-existing relationships between these two economic powerhouses. Japan’s Toyota Tsusho (TSE:8015) currently has a monazite sand rare earth production base in India where Toyotsu Rare Earths India Private, a wholly-owned subsidiary of Toyota Tsusho, uses monazite sand that is supplied by Indian Rare Earths Limited. These two manufacturing powerhouses boast significant market potential if they channel their focus towards the rare earth market moving forward.
REE collaboration in non-developed countries
Speculator interest will also likely have been piqued at the suggestion that the Indian prime minister’s visit may include discussions related to the joint development of REE resources in non-developed countries.
Last year, the US Geological Survey stated that it estimates that there are at least 1 million metric tonnes of REE resources within the Khanneshin carbonatite in Afghanistan’s Helmand province. According to The Times of India, the visit could pave the way towards combining Japan’s REE production technology with India’s strategic interests, which already include committed investments from Indian mining and metal companies in mineral assets across Afghanistan.
Much remains to be seen over the coming weeks and market analysts will be watching this alliance closely. While it would take India some time to be able to produce the capacities that China is capable of, this announcement will go a long way towards ensuring that it is moving in the right direction. The industry is on edge as a result of the never-ending saga of Lynas Corporation’s (ASX:LYC) Malaysian project, and it won’t be long before investors look to markets that face minimal public or government intervention and are capable of producing product for a predetermined client base. This agreement has the potential to offer just that.
Securities Disclosure: I, Adam Currie, hold no direct investment interest in any company mentioned in this article.