India returns to rare earths production, but no threat to China

India’s plan to revive production of rare earths makes sense as a long-term strategic move but the country will only be able to plug a fraction of the gap in the market left by China’s falling exports.

China, increasingly flexing its muscle on the international stage, announced export cuts this year that pushed prices higher and triggered a rush to find alternative supplies. Rare earths are used to make a broad spectrum of high-technology products from plasma televisions to weapons and China now provides 97% of global supply, meeting demand primarily from Japan and the US.

Indian Rare Earths, the state-run producer which
halted output in 2004 in the face of cheaper competition from China, is now stepping back into the picture with an investment of Rs140 crore in a 5,000-tonne capacity plant it hopes could produce material by 2012.

“Whether India becomes a player of any consequence will depend on how fast it can ramp up production and capacity,” said Uday Bhaskar, director of strategic affairs think tank the National Maritime Foundation, weighing India’s possible role as a future global supplier.

“I cannot see India becoming a big player in the near future. But India should develop this sector because in principle it should not become dependent on supplies from one country and that too, China.”

India consumed about 200 tonnes of rare earth products in 2004, the year it suspended production and the last year for which official data is available.

One official said the requirement would have “zoomed” given the near-double digit growth in the economy since.

The country imports all its current requirements from China and mostly uses rare earths in consumer goods industries, petroleum refineries and the car industry.

China’s reserves are also far greater, some 10 times more plentiful than India’s 3.1 million tonnes.

But a government official, speaking on condition of anonymity, said: “The very fact that China is the near-monopoly makes any secondary supply precious, however small that supply may be.”

China says it needs to conserve its mine reserves for future domestic consumption and has just tried to reassure global customers by saying export cuts in 2011 will only be slight.

But others see its reduction in supplies to the world market as a trade weapon and Japan — already feuding with its powerful neighbour over territorial rights in the East China Sea — has recently struck cooperation deals to develop alternative supplies with both Vietnam and India.

The US made a point of securing assurances from China at a summit last week that it would be a “reliable supplier” of the minerals.

India wants partners such as the US and Japan to help build its technological capability to convert the ore into metal, the big challenge in expanding output of rare earths, which are not as hard to find as the name suggests.

“We are looking at partnering with countries which have technological capabilities to help us,” one government official said.

“You will probably not see much happening if you take a short-term view. This is a long-term game.”

Longer term, developing its own rare earth supplies is a priority for the government and could at least allow it to be self-sufficient with a foothold in the global market.

“It’s not a major supplier, but not insignificant either, because 5% of global supplies means a substantial secondary source for at least some of the big companies,” R N Patra, chairman and managing director of Indian Rare Earths, said.

Still, China is likely to call the shots for some time to come with mines outside the country — Molycorp’s Mountain Pass in California and Lynas’ Mt Weld in Australia — likely to take another three years to meet two-thirds of non-China global demand.

“The major impact (on the global market) is coming from China and Australia ramping up supplies,” said Amy Lee, analyst at Nomura in Hong Kong. “Even if India ramps up production, global supply and demand conditions will remain unbalanced for some time.”