Reviving the Rare-Earths Industry Outside China
 

Following up on last month's unofficial China embargo of rare-earth-minerals exports, the NYT "Room for Debate" feature has a nice [url=http://www.nytimes.com/roomfordebate/2010/11/08/can-the-us-compete-on-rare-earths?ref=opinion]online discussion[/url] about the prospects of reviving the rare-earths mining and manufacturing industry in the U.S. - other countries having adequate indigenous supplies of the basic ores will be in a similar situation. The following snip summarizes the dilemma resulting from decades of having offshored the business:

[url=http://www.nytimes.com/roomfordebate/2010/11/08/can-the-us-compete-on-rare-earths/for-the-us-starting-a-rare-earth-mine-is-the-easy-part]The Mines and Minds Are in China[/url]: [i]The only rare earth mine in the United States that is anywhere near becoming fully operational is The Mountain Pass mine in California. While we have the capability to mine and process the reserve there, starting a mine in and of itself will not completely solve our problems.[/i]
[quote]One of the biggest challenges we face is our lack of technological expertise going forward. From about the 1950s to 1980s, the U.S. broke new ground in innovations with rare earths.

For example, we began to use europium as a phosphor for the red in color televisions. General Motors, simultaneously with Japan’s Hitachi, invented the neodymium-iron-boron magnet for use in their vehicles. The two companies fought over the patent, which ended up being split. The technology was eventually transferred to China and today there are no companies in the U.S. that manufacture these powerful magnets, which are critical to many high-tech applications. We also made significant contribution in utilizing rare earth elements as fluid cracking catalysts in the petroleum refining industry. And numerous energy and military applications were developed.
Molycorp in Mountain Pass Isaac Brekken for The New York Times Molycorp's Mountain Pass mine in California.

China realized the value in its rare earth resources early on. If you look at China’s rare earth industry, you will see that it has undergone a major transformation. China, which once focused on exporting rare earths in their raw forms, has shifted its end goal from production to innovation. In the 1970s, China was just exporting rare earth mineral concentrates. By the 1990s, it began producing magnets, phosphors and polishing powders. Now, it is making finished products like electric motors, batteries, LCDs, mobile phones and so on.

Through all the effort that the Chinese government has put into the industry, China has accrued tens of thousands of experts working on the research and development of rare earth elements. Meanwhile, the numbers of rare earths scientific experts in the United States has diminished and pales in comparison.

If we don't have the experts required to take the rare earth elements to their next levels, that is, going from oxides to metal compounds or creating magnets or other critical compounds, then there is nothing we can do other than to ship them back to China for further processing, which puts us back to square one. [/quote]
[i]My Comment:[/i] Some shorter key-snips from the other contributors to the discussion:

[url=http://www.nytimes.com/roomfordebate/2010/11/08/can-the-us-compete-on-rare-earths/how-to-mine-rare-earths-in-our-own-back-yard]Using Our Own Back Yard[/url]: [i]The process of bringing back the rare earth industry has already started with the reactivation of Molycorp’s Mountain Pass mine in California.[/i]
[quote]...we need to change the way we buy cars, phones and windmills. Currently, batteries, cellphones and Prius motors are essentially disposable -- after use they go to landfills and scrapyards where scavengers take their parts. We need to create a system where the manufacturer owns the minerals forever, and thus needs to design with the intent of recycling (or upcycling) these resources indefinitely. This will not only ensure that we have a greater pool of usable rare earths; it could also change the way we manufacture and may create jobs that cannot be outsourced. [/quote]

[url=http://www.nytimes.com/roomfordebate/2010/11/08/can-the-us-compete-on-rare-earths/a-glut-of-rare-earths]A Glut of Rare Earths?[/url]: [i]The hullabaloo over the supply of rare earth elements seems likely to be short-lived. Many companies are responding to this – not just in the United States, but in Australia, India, Japan and elsewhere -- so the concern of the moment is not what should we do, but whether we are headed toward a bursting of a rare earth bubble in the next five years or so.[/i]
[quote]For far-reaching economic and political reasons, the U.S. should invest in a domestic rare earth industry. China's recent unofficial embargo of rare earths was a wake-up wall for the U.S. to accelerate its effort to keep ahead in technological development.

American companies like Molycorp in California and Wings Enterprises in Missouri will have to figure out how to mine rare earths economically, while minimizing the environmental impact, including the potential leaking of radioactive thorium into water supplies. The presumption is that they will.

The production plans of two companies alone – Molycorp and Australia's Lynas Corporation – will add the equivalent of 35 percent of China's current production to the market. Other companies have similar plans, hence a abundance of supply is a likely scenario. That is when trouble will begin. China is bound to respond by dropping its prices and starting a bloodbath in the industry.[/quote]

[QUOTE=ewmayer;236303][quote]we need to change the way we buy cars, phones and windmills. Currently, batteries, cellphones and Prius motors are essentially disposable[/quote][/QUOTE]"What do you mean [I]we[/I], white man?"

Some of us have been recycling such stuff for years.


Paul

[QUOTE=xilman;236304]"What do you mean [I]we[/I], white man?"

Some of us have been recycling such stuff for years.[/QUOTE]

I also go out of my way to pick up discarded batteries I find lying around and bringing them to my work, where we have battery-recycling bins in every building. But the U.S. overall is still dismal at recycling such things. That is the "we" to which I was we-ferring.

recycling and unemployment benefits
 

It is not just the act of recycling materials that has to change in the U.S. It is the design of products that do not have materials that limit recycling and changing the overall mentality to recycle everything possible. As an example, my company sells digital switching equipment in Europe that has to comply with standards such as a specific type of paint that facilitates recycling. There are also requirements that a company must provide a recycling system for beginning to end support of manufactured goods. Such a system does not exist in the U.S.

On a different tack, Yahoo has an article this morning:
[QUOTE]Fewer people applied for unemployment aid last week, the third drop in four weeks.

The Labor Department says initial claims for jobless aid dropped by 24,000 to a seasonally adjusted 435,000. Many Wall Street economists expected a smaller decrease.

If the decline continues, it could signal meaningful improvement in the job market. The four-week average of claims, a less volatile measure, fell 10,000 to 446,500.

That's the lowest level for the average since the week that ended Sept. 13, 2008, just before the financial crisis intensified that weekend with the collapse of Lehman Brothers. [/QUOTE]

I've become increasingly pessimistic over the last 3 years so I ask how this could be skewed. That pessimism says that the single biggest reason for fewer jobless benefit claims is likely to be that benefits have expired for a large number of people. Do you see mention of this in the above? No, what you see is that jobless claims declined. This is garbage reporting. What should be shown is how many new jobs were created and how many positions filled to correspond to the drop in jobless benefit claims. I'll grant that tracking how many people have jobs is more difficult than tracking how many applied for jobless benefits, but still, tracking jobs would be a reliable indicator that people are getting off the unemployment benefit wagon for the right reason!

DarJones

[QUOTE=ewmayer;236293]...they tend to reverse dramatically, often once a big short-squeeze (and resulting panic buying) has finished being covered - here is the latest intraday SLV chart:[/QUOTE]

I will express a controversial opinion.

All derivatives and all short selling of both equities and commodities should
be totally banned.

[QUOTE=ewmayer;236307]I also go out of my way to pick up discarded batteries I find lying around and bringing them to my work, where we have battery-recycling bins in every building[/QUOTE]
Note that recycling of batteries is a very nice idea, but the majority of batteries everyone uses today are alkaline batteries, and nobody has figured out how to effectively recycle them yet. The heavy metal content of alkaline batteries has gone way down over the last few years. Hopefully everyone thinks twice about throwing away more exotic batteries like ni-cads, which is natural because they're so expensive.

(IIRC all this was in wikipedia)

[QUOTE=R.D. Silverman;236472]All derivatives and all short selling of both equities and commodities should be totally banned.[/QUOTE]

And all totalitarian control freaks should at least try to understand what purpose forward contracts, futures contracts and other derivatives serve, before they advocate totale vernichtung of all the filthy money changing for being too Jewish.

[QUOTE=Fusion_power;236446]On a different tack, Yahoo has an article this morning:
[snip]

I've become increasingly pessimistic over the last 3 years so I ask how this could be skewed. That pessimism says that the single biggest reason for fewer jobless benefit claims is likely to be that benefits have expired for a large number of people. Do you see mention of this in the above? No, what you see is that jobless claims declined. This is garbage reporting. What should be shown is how many new jobs were created and how many positions filled to correspond to the drop in jobless benefit claims. I'll grant that tracking how many people have jobs is more difficult than tracking how many applied for jobless benefits, but still, tracking jobs would be a reliable indicator that people are getting off the unemployment benefit wagon for the right reason!

DarJones[/QUOTE]

You forgot to mention the most-obvious game that gets played with the weekly claims, over and over again, namely that the Labor Department announces the latest (preliminary) claims number, and then compares it in true apples-to-oranges fashion to the previous week's *revised* number. And in nearly every case the previous week's number gets revised upward (i.e. worse than initially announced), so nearly every week the bogus comparison shows "claims dropped", and yet the number never seems to get out of the 400-500k range. And each time the MSM unquestioningly report the "improvement". Here's a Mish article illustrating how initial claims, after recovering from the mass-job-loss phase of the Great Recession and dropping below 500k/week at the end of last year, have been essentially flat since, and at a level that indicates the economy is still slowly losing jobs, to say nothing of generating enough jobs even to keep up with population growth, and to say nothing of actually starting to make a dent in the 10-million-pl;us jobs lost in the past 2 years:

[url]http://globaleconomicanalysis.blogspot.com/2010/11/weekly-claims-show-job-stagnation-for.html[/url]

How can any reasonable-minded person look at the [url=http://2.bp.blogspot.com/_nSTO-vZpSgc/TNMMEimiTHI/AAAAAAAAJpU/vy5TyGMyefg/s1600/weekly-claims-2010-11-04B.png]third figure[/url] in that article and conclude that things have improved on that front this year? Especially compared to the pre-recessionary trendline.

Companies play the same kind of games with earnings reports: After each quarter's report you give bullish guidance, which helps boost your share price. Then over the ensuing quarter you steadily guide lower, so by the next quarterly earnings report you always manage to beat your-now-much-lowered expectations. Lather, rinse, repeat. And we won't even get into how most corporate earnings computations these days are works of fiction, e.g. disguising your losses as a never-ending series of "one-time charges", and getting market "analysts" (who are in bed with many of the same companies they cover, i.e. paid to be relentlessly bullish) to ficus on the fiction that is "operating earnings", rather than stodgy old (revenues - expenses) thing.

------------------------------

In other news, Euro-periphery (especially Irish) bond spreads once again shooting into the stratosphere - yield spreads on Irish sovereign debt shot up by over 10% to over 600 basis points (i.e. > 6% over the benchmark German Bund) in just one *day*. Watch this space...

And the sugar high from Banana-Republic Bennie's much-ballyhooed QE2 announcement appears to have worn off very quickly indeed. Was good for a huge 48-hour short squeeze in the financials, though).

--------------------------------

Bob, you are right to be concerned about financial instruments such as options and derivatives. But to my mind, the problem is not the instruments themselves - they were devised for very good reasons - but in the fact that our feckless (and in many cases criminal - look at former senator Phil Gramm, his wife Wendy, and their involvement with government, the CFTC and private industry, especially notorious commodity-markets manipulators like Enron was) government regulators have allowed rampant, systematic abuse of all these devices, to where the vast majority of their usage is no longer related to their original purposes of hedging risk, but rather to manipulate markets and engage in pure hig-leverage speculation.

To me, some much more sensible steps which don't throw the baby out with the bathwater include:

- Actually enforce the longstanding ban on naked shorting;

- Ban two-tiered (i.e. designed to provide advantageous informational asymmetry for those willing to pay for it) markets and HFT - the latter could be accomplished instantly by forcing all bids to stay live for at least a few seconds;

- Require traders in commodities and related futures and derivatives to demonstrate a "legitimate material interest" in the commodity being traded, that is, allow for legitimate price-hedging by actual users of the commodities, but get e.g. Goldman out of the oil and soybean markets.

- Restore and vigorously enforce longstanding leverage limits which were nixed (or raised to ridiculous levels) at the behest of Big Finance in the past decade.

[QUOTE=Calvin Culus;236489]And all totalitarian control freaks should at least try to understand what purpose forward contracts, futures contracts and other derivatives serve, before they advocate totale vernichtung of all the filthy money changing for being too Jewish.[/QUOTE]

ROTFLMAO

[QUOTE=ewmayer;236490]

<snip>

especially notorious commodity-markets manipulators like Enron was) government regulators have allowed rampant, systematic abuse of all these devices, to where the vast majority of their usage is no longer related to their original purposes of hedging risk, but rather to manipulate markets and engage in pure hig-leverage speculation.

[/QUOTE]

But this is exactly the problem. And I see enforcement as being
impossible/totally impractical.

It's not just that the abuse results in market manipulation. If the
manipulation only affected other speculators, it would not be so bad.

But the manipulation also affects consumers and the rest of the public who
are not directly involved in the market. Look at what speculation/manipulation
of oil futures does at the gas pump just to cite one example.

[QUOTE=R.D. Silverman;236492]But this is exactly the problem. And I see enforcement as being
impossible/totally impractical.

It's not just that the abuse results in market manipulation. If the
manipulation only affected other speculators, it would not be so bad.

But the manipulation also affects consumers and the rest of the public who
are not directly involved in the market. Look at what speculation/manipulation
of oil futures does at the gas pump just to cite one example.[/QUOTE]

Any successful trader will tell you that bullying the market is a recipe for disaster. From an interview with Bruce Kovner:

[url]http://books.google.com/books?id=jNG7r-Ul7jwC&pg=PA69[/url]

Eventually the manipulator will run out of cash and the problem solves itself. Your homework for today is to learn that any attempt to regulate markets is always an attempt to manipulate markets. Any society that fails to realize this is doomed [B]because[/B] of regulation, not inspite of regulation.