India to Gain from China’s Rare Earth Standoff

MUMBAI – India suddenly finds itself in direct competition with China in the least expected of arenas – the supply of rare earth (RE) metals. India, which contributes 2% of the global output of rare earths, has been in the headlines for some months now vis-a-vis the precious commodity.

The catalyst has been the tension between China, the world’s largest producer of RE, and Japan, which sparked off in October this year. The situation has made Japan turn to an unlikely ally in its hour of crisis, India, among other friends.

On December 8, Toyota Tsusho Corp, a Toyota Motor Corp group company,  announced that it would build a rare earth processing plant in India and start shipping 3,000 to 4,000 tonnes a year of the mineral to Japan as early as 2012.

A worried Japan, producer of some of the world’s leading edge technological wonders that heavily rely on REs, was given a rude wake up call by China recently.

The latter, according to media reports, decided to slash exports of the metals to Japan, as a fallout of  the October `incident’ in which a Chinese fishing boat captain, who had strayed into Japanese waters, was detained by Japanese authorities.

Though denied by China, the move led to an almost immediate spike in the price of REs, besides starting a race among leading Japanese companies – the world’s biggest users of rare earths – to find other sources of supply.

Each of them is trying a different tack.: While trading houses like Sojitz Corporation and Sumitomo Corporation are contemplating investing in mines outside China, Hitachi said that it would recycle 10% of its needs by 2013.

Hitachi officials were quoted as saying that they needed a steady supply of these materials and recycling would become part of the supply chain. Japanese efforts also included seeking help from the Canadians.

But that is the Japanese end of the story. The India RE story has taken a new twist because of the series of events sparked off by the boat incident in the not-so-distant Yellow Sea.

India had last increased its production of rare earths in 1995, from 2,500 tonnes to 2,700 tonnes. At present, India may be contributing just over 2% to the overall global production of RE, way below China’s contribution of approximately 96%, but that still leaves it at the number 3 slot.

China’s reserves of rare earths is about 36% of the total global reserves. It is also nearly three times that of the US.

The China-Japan imbroglio could not have been timed better where India is concerned. Just before it happened, the Indian Government was anyway contemplating a plan to triple its rare earths production from 2,700 tonne to 7,700 tonnes by the end of 2011.

This was publicly stated by R N Patra, chairman of Indian Rare Earths Ltd (IREL), a state-run firm, recently. India sensed a business opportunity in the growing tensions over rare earth supplies between nations, more so between China and the rest of the world, and this was the primary reason for it to form a new national, multi-pronged strategy on RE: to not only ramp up domestic production but also to actively think of allowing Indian Public Sector units (PSUs) to participate in joint ventures with foreign companies.

Now, with Japanese companies waiting in the wings, India has a ready-made buyer for its RE supply (not that there was a dearth of buyers to begin with).

Like China uses its RE supply often as a political tool, India, too, can use it to counter China. India’s stated position is that it would not like any single country to monopolise the RE supply, a line not very different from that taken by developed countries like the US and Canada.

In fact, India was quick to seize upon the evolving situation between China and Japan. During his Japan visit this October just after the fishing boat episode, Indian Prime Minister Manmohan Singh signed a deal to supply rare earths to Japan, firing the second salvo in “the war of resources”, as dubbed by RE analysts.

On their part, developed nations, because of the obvious lack of RE in the rest of the world, have shown willingness to forge a partnership with India on the RE front. For obvious political reasons, they are more inclined to develop a long term relationship with India, rather than the `unpredictable’ China.

With 3.1 million tonnes of rare earths reserves in India, the question uppermost on everybody’s mind now obviously is – can India face up to China?

The answer perhaps lies in the new RE policy that the Indian Govt is contemplating, followed up by its execution. Participation by private players is something that India is looking at in joint ventures, though as minority players.
Besides, India needs to seriously look at the inclusion of foreign partners in the processing and refining of RE, though it may stick to its policy of not allowing them to take part in the actual extraction of rare earths.

As a first step in the new policy setup, the state-run IREL has announced plans to restart exports of rare earths next year, the first time since 2004, after the ministry of environment and forests recently gave clearances to start work on its 5,000 tonne capacity plant in the Indian State of Odisha.

The estimated investment is Rs 1.4 billion (USD 31 million) for a 10,000 tonne per annum monazite processing plant that will produce 5,000 tonne REO (rare earth oxides) at Orissa Sands Complex, near Gopalpur in Orissa.

The plant could triple India’s output of rare earths. The company was forced to shut down its processing facility at Aluva in Kochi in 2004 due to lack of market competitiveness.

Before it had shut down in 2004, IREL had produced 1,500 tonnes of rare earths, of which about 1,300 tonnes was exported, mostly to developed countries such as the US, Japan, Europe and Canada. The country’s domestic demand at that time was 200 tonnes in 2004.

Other Indian States of Kerala, Orissa and Tamil Nadu account for nearly 95% of India’s production of rare earths. Besides IREL, PSUs like Kerala Minerals and Metals Ltd (KMML) and Travancore Titanium Products Ltd (TTPL), are the leading state players in rare earths production.

Others in the private sector are Cochin Minerals and Rutile Ltd (CMRL), which produces synthetic rutile and ferric chloride, and Chennai-based Beach Minerals Co. Pvt. Ltd and V.B. Minerals and Resins Pvt. Ltd.

Thus, if India plays its cards right, 2011 could be a watershed year for India in the supply of rare earths.

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