June 21, 2010
Climateer Line of the Day: Rare Earth Edition
From Jack Lifton writing at Technology Metals Research:
Good times.Rare earths are nowhere near as important to the China State Council as they are to Western stock promoters, trying their P.T. Barnum Best to get us alarmed over a non-existent direct threat, from a battered industry in a country trying to raise its standard of living and meet stated national economic goals....
Here's a 2015 post looking back to those halcyon days:
Rare earth metals: Objects of power and risk
Just the words, "Rare Earth" brings back memories: “My old MG TC. A blond girl, tan from the summer sun, in the Hamptons, beer on the beach, ‘Unchained Melody,’ the little bar in the Village.”
Uh, wait. That was Adam Smith in our 2012 post "Adam Smith on Oil Shale (Now with Voodoo Beach Bunnies)". Ahem. Never mind.
Our memories are more like trading Molycorp for three triples, short and long, on the blog, in public, from IPO to bankruptcy or if you will "From tombstone to tombstone".
Or commenting on the passing parade: Luxembourg-based Rare Earth Company Hoping to Mine in South Africa by 2014 Does Oversubscribed IPO in Toronto (FRO.tsx), or quoting one of the, if not the, best books on investing and life:
"...Words like 'uranium', 'rare earths', etc. seem to be magic to
those unsuspecting who are often fleeced..."
Gerald M. Loeb
The Battle for Investment Survival
Simon & Schuster, 1935
Good times, good times.....Where was I? Oh yes:
From Naked Capitalism, August 1:
The Two Capitalisms: Electric Batteries as a Case Study in US Magical Thinking vs. Chinese Vertical Integration
By Jack Lifton, a consultant, author, and lecturer on the market fundamentals of the technology metals
Capitalism with Chinese Characteristics, (CWCC) as the Chinese press officially refers to the use of capitalism by the Chinese Communist Party (CCP) to advance socialism in China, is winning the battle with the neoliberal, “free and efficient,” market that supposedly has led the USA, first and foremost, to “the end of history.” CWCC has transferred enough wealth from the west to the east to ignite self-sustaining growth in China’s GDP.
Our world dominated by two capitalisms; the “free market” variety practiced in one form or another by almost all of the industrialized countries except Russia and a few others with a strong authoritarian bent; and “Capitalism with Chinese Characteristics (their official description) practiced of course by the Peoples’ Republic of China.
Let’s look at how the two capitalisms have fared in creating a secure supply of the raw materials for manufacturing energy storage and production devices for the storage of and production of alternate (to fossil fuel produced) energy. Access to supplies is critical to prevent shortages and to help assure market position.
Notwithstanding the illogical blather about globalization, its purpose outside of China in the last generation has been to enrich a small segment of western society without regard to the welfare of the general populations in those countries. Natural resource imperialism has been the driver of globalization for centuries. But the countries that were once victims of resource imperialism are in the process of turning the tables via total vertical integration of the production, use, and marketing of consumer goods critically enabled by those natural resources.
Specifically, the overarching purpose of Chinese business is to achieve Chinese independence of global markets for the basic needs of a widespread technological society second to none.
The Chinese focused first on the security of a growing Chinese INDUSTRIAL economy by seeking to attain natural resource total supply chain self-sufficiency. The country is now addressing health and safety.
Chinese politicians pursue national objectives through a reestablished mandarinate, a reproduction in part of their own ancient approach to large scale governance by a meritocratically selected and educated elite. They have dded to that a bit of the ancient Roman cursus honorum, the path that a member of the ruling class must take in order to advance to senior roles in their one party government. No Justin Trudeau’s; Eduard Macron’ or even Donald Trump can take power in their system. It does help to be directly descended from a founder of the Chinese Communist Party or its hierarchy but experience in government, and a specialized education, is an absolute requirement for the top job(s) in today’s China.
By contrast, American politicians; public intellectuals; and opinion makers are committed to magical thinking; they hold that beliefs are more important than mere facts. When they recognize a “crisis,” which they define as “when things aren’t going the way they are supposed to go to keep us personally wealthy and powerful indefinitely” their response is to first “study” the problem (to get it out of the public eye) and then after consultation with each other throw money at “solutions” that have been proposed by properly credentialed “experts’ and others who are the “right sort (their class) of people.” Thus we get neoliberal economics with its conceit that a “free” market will always be both efficient and “ultimately” keep supply and demand in balance through directing capital to where it is needed to do so.
The FACT; it is not a belief or conjecture; but an obvious fact that a consumer society built upon technology is completely dependent upon the production of just a few key materials derived from natural resources. This is well understood by the Chinese mandarinate, and since the goal of the CCP is to build such a society, it has resulted in a national mandate for China to become self-sufficient in these key materials for technology as soon as possible. The Chinese are not natural resource globalists; in fact they are natural resource imperialists for want of a better term.
As Mao Zedong said when the Chinese communist takeover was floundering economically, “Let a thousand flowers bloom,” i.e. try everything
His brilliant successor, Deng Xiaoping, decreed that China must quietly become wealthy and powerful, and for this he allowed the first use of capitalism to advance those goals through selecting the best results of letting a thousand flowers bloom.
Today’s Chinese leaders, less charismatic but dedicated to the same goals, have promulgated a modified capitalism (with Chinese characteristics) to achieve self-sufficiency in production and then supply of goods determined to be critical to the future of Chinese society.
And now they are sorting out the various approached to capitalism and the selected target resources to make CWCC as efficient as possible to achieve the goals that have been so identified.
The mandarins convinced Deng that China’s abundance of rare earths was important, because they foresaw that the miniaturization of electronic and electrical devices, the main use of rare earths properties, conserved and extended commodity natural resources such as iron, steel, aluminum, copper, and fossil fuels, thus advancing China’s goal of self-sufficiency. Within one generation the Chinese rare earth supply chain had become vertically integrated and was a global monopoly; this was mostly achieved because China’s construction of a total downstream (from mining and refining) supply chain allowed it also to become a monopsony in the final assembly of goods dependent for their operations upon the electronic properties of the rare earths. This monopoly/monopsony was the intended goal!
Of particular interest today is that China’s rulers have now determined that they must electrify personal as well as mass transportation on the ground in order to eliminate an unforeseen (by them) problem: massive air pollution in their mega cities caused by the concentrations there of fossil-fueled vehicles (which in the general scheme of things globally produce only two percent of “pollution,” but their concentrations in cities are principal contributors to it in those locales).
China’s “President” mandated first that China’s 90 motor vehicle assemblers and 40 lithium ion battery manufacturers produce 5,000,00 electrified (mainly battery powered) motor vehicles by 2020. Then they extended the “mandate” to foreign automakers manufacturing or selling cars in China, and furthermore, required that only Chinese manufactured batteries may be used in motor vehicles made or sold in China!!
The Chinese domestic battery maker’s very first response was that they did not have the manufacturing capacity nor access to the raw materials necessary. The response of the long term goal directed CCC was to use CWCC to “encourage” Chinese mining, refining, and fabricating industries (dominated by SOES) to develop or purchase the critical natural resources and to expand their capacities to meet the needs of the mandate. The Bank of China was ordered to “facilitate” such investments GLOBALLY-but and this cannot be overemphasized-globalization of sourcing for the PROC means the acquisition globally for use IN CHINA of natural resources! It does not mean acquiring foreign sources of natural resources to produce them as raw materials for global markets, NOT AT ALL!
By contrast, free market capitalism has today been almost totally financialized. Its purpose has become the transfer of money to a few, not the creation of new wealth in the financier’s home country through building factories and creating jobs. In fact, the moneyed elites have become what the Soviets used to call “cosmopolitans,” which were the criminals who put self before cause or country. Although it is easier for a Chinese national to “escape’ than it ever was for a Soviet citizen, it is still a crime in China to make or sequester money that is not for the purpose of advancing China’s path to socialism. Expatriates are shunned if they try to return and the amount of capital that can be exported from China for personal use is strictly limited.
With that introduction, let me now look at the influence on world commodity markets of the Chinese goal of the electrification of motor vehicles for personal use. The issues in the west have been driving range and the selling price of the vehicles.
The nebulous goal in the USA is allegedly to save the planet. In China, it is to immediately reduce pollution in the cities. American free market capitalism wants a relatively short term return on capital. CWCCs wants a self sufficient Chinese economy with return on capital to be measured by including the success of the Chinese standard of living and quality of life.
Let’s look at the critical natural resources necessary for producing lithium ion batteries that can give a one to two ton motor vehicle a range of 300 km or more; these would be of the of the NCA, nickel-cobalt-aluminum cathode type such as is used by the Tesla corporation....