Vast deposits of rare earth minerals, crucial in making high-tech electronics products, have been found on the floor of the Pacific Ocean and can be readily extracted, Japanese scientists said on Monday.
"The deposits have a heavy concentration of rare earths. Just one square kilometer (0.4 square mile) of deposits will be able to provide one-fifth of the current global annual consumption," said Yasuhiro Kato, an associate professor of earth science at the University of Tokyo.
The discovery was made by a team led by Kato and including researchers from the Japan Agency for Marine-Earth Science and Technology.
They found the minerals in sea mud extracted from depths of 3,500 to 6,000 meters (11,500-20,000 ft) below the ocean surface at 78 locations. One-third of the sites yielded rich contents of rare earths and the metal yttrium, Kato said in a telephone interview.
The deposits are in international waters in an area stretching east and west of Hawaii, as well as east of Tahiti in French Polynesia, he said.
He estimated rare earths contained in the deposits amounted to 80 to 100 billion metric tons, compared to global reserves currently confirmed by the U.S. Geological Survey of just 110 million tonnes that have been found mainly in China, Russia and other former Soviet countries, and the United States.
Details of the discovery were published on Monday in the online version of British journal Nature Geoscience.
The level of uranium and thorium -- radioactive ingredients that are usually contained in such deposits that can pose environmental hazards -- was found to be one-fifth of those in deposits on land, Kato said.
A chronic shortage of rare earths, vital for making a range of high-technology electronics, magnets and batteries, has encouraged mining projects for them in recent years.
China, which accounts for 97 percent of global rare earth supplies, has been tightening trade in the strategic metals, sparking an explosion in prices.
Japan, which accounts for a third of global demand, has been stung badly, and has been looking to diversify its supply sources, particularly of heavy rare earths such as dysprosium used in magnets.
Kato said the sea mud was especially rich in heavier rare earths such as gadolinium, lutetium, terbium and dysprosium.
"These are used to manufacture flat-screen TVs, LED (light-emitting diode) valves, and hybrid cars," he said.
Extracting the deposits requires pumping up material from the ocean floor. "Sea mud can be brought up to ships and we can extract rare earths right there using simple acid leaching," he said.
"Using diluted acid, the process is fast, and within a few hours we can extract 80-90 percent of rare earths from the mud."
The team found that sites close to Hawaii and Tahiti were especially rich in rare earths, he said.
He gave no estimate of when extraction of the materials from the seabed might start.
Reserve-rich Asia can afford to turn on the government spending taps should a recent bout of sluggish economic growth deteriorate into a deeper downturn.
For countries counting on exports for growth -- in other words, most of Asia -- overseas demand over the next couple of months may look as shaky as it did in May and June.
A series of manufacturing surveys released on Friday showed export orders weakened, particularly from Europe and the United States. As long as those regions struggle with slack consumption, Asia's trade powerhouses will suffer.
"Clearly, we are in for a rough summer," said Frederic Neumann, Hong Kong-based co-head of Asian economics for HSBC, which compiles the monthly manufacturing surveys in Asia.
But Neumann saw some promising signs amid the gloom: inflation pressures are ebbing.
That means if growth doesn't pick up soon, governments will have more leeway to ramp up spending without worrying so much about prices overheating. That in turn takes some of the pressure off central bankers who are struggling to cool inflation without snuffing out growth.
"As inflation fades, Asian officials -- and above all Chinese -- will be able to crank the stimulus dial one more time, and lift growth into year-end," Neumann said.
To be sure, Asia's inflation battle is not yet won. Inflation rates are still running well ahead of government targets in China, India, South Korea and elsewhere, even after a nearly 20 percent drop in oil prices since early May.
"Core" inflation, which strips out volatile prices such as those for food and energy, has been creeping higher.
Low unemployment in the region gives workers more clout when it comes to negotiating wage increases to keep up with rising inflation. But that poses the risk that companies will increase prices to offset higher labor costs, touching off a worrisome wage-price spiral that drives inflation even higher.
That is one reason why economists widely expect further interest rate increases across the region, with India, Malaysia and Thailand among the central banks tipped to hike this month. Taiwan's central bank raised rates last week.
Jan Loeys, head of asset allocation for J.P. Morgan in New York, said even if overall inflation is peaking, as many economists believe, "at best it implies a temporary pause, and more likely just a slowing in the tightening process."
Why? Emerging market interest rates are not even halfway back up to the levels seen before the financial crisis exploded in 2008.
Australia is next up with a policy-setting meeting on Tuesday, although economists expect no change in interest rates as growth there shows signs of waning. Retail sales dropped unexpectedly in May, figures on Monday showed.
Malaysia's rate decision is due on Thursday, and it is also expected to remain on hold after raising rates in May. Central bank governor Zeti Akhtar Aziz told Reuters last week that economic growth was still key to monetary policy.
"We don't run the economy to the ground just to have price stability," she said.
ONE HAND GIVETH
With an assist from the government's coffers, central bankers would have a better shot at targeting inflation without causing too much collateral damage to growth.
Compared with most advanced economies, Asia is in an enviable position. Unlike the United States, Britain and some other "rich" countries that are saddled with trillions of dollars in government debt, Asia's big economies boast large reserves and small debt burdens.
In China, for example, the government could compensate for tighter credit conditions by boosting investment in housing. With more than $3 trillion in reserves, funding is not an obstacle.
"China's pursuit of loose fiscal policy should outweigh its tight monetary stance," Bank of America-Merrill Lynch economists wrote in a recent note to clients....
Greece would likely be in default if it follows a debt rollover plan pushed by French banks, S&P warned on Monday, deepening the pain of a bailout that one European official said will cost Athens sovereignty and jobs.
European politicians and bankers had expressed confidence last week that the French proposal would not trigger a default, but ratings agency Standard & Poor's said it would involve losses to debt holders, most likely earning Greece a "selective default" rating.
"It is our view that each of the two financing options described in the (French banks') proposal would likely amount to a default under our criteria," S&P said.
French banks, major holders of Greek sovereign debt, proposed voluntarily renewing some of the bonds when they fall due, but on different terms.
S&P cut Greece's sovereign rating to "CCC" last month, from "B," on a view that any restructuring of the country's massive debt load would count as an effective default.
The euro fell from around $1.4550 to a session low around $1.4510 after the latest S&P comment.
Derivatives industry body ISDA said before the French proposal was released in late June that a voluntary agreement to roll over Greek debt would "typically" not trigger payments on credit default swaps.
Greece was already facing an uphill struggle this week to start the process of selling off state-owned assets and reform its tax system to meet European Union and IMF conditions for bailing it out. The deep spending cuts required under the loan terms have sparked angry protests on the streets of Athens.
Eurogroup Chairman Jean-Claude Juncker said Greece will lose sovereignty and jobs to meet those criteria, a comment that has enraged unions. Any suggestion of foreign intervention in running the country is an incendiary political issue that will make implementing reforms even tougher.
Public-sector union ADEDY, which has launched crippling strikes and protests, reacted angrily to his comments.
ADEDY President Spyros Papaspyros said Juncker was out of line: "Mr Juncker interferes in the internal affairs of a country, provokes European rules and is an embarrassment for the country whose government tolerates him."
Juncker's comments could trigger more of the anti-austerity street protests that have roiled the country for months as Greece stays stuck in its worst recession since the 1970s with a youth unemployment rate of more than 40 percent.
"The sovereignty of Greece will be massively limited," Juncker told Germany's Focus magazine in an interview released on Sunday. Teams of experts from around the euro zone would be heading to Athens, he said.
"One cannot be allowed to insult the Greeks. But one has to help them. They have said they are ready to accept expertise from the euro zone," Juncker said.
EASIER SAID THAN DONE
Greece last week passed austerity measures worth 28 billion euros ($40 billion) and promised to deliver 50 billion euros in sell-off revenues by 2015, including raising 5 billion euros by the end of this year alone. On the list are public utilities whose sale is sure to prompt public reaction.
"Greece now needs to push faster fiscal adjustments and structural reforms," said EFG Eurobank economist Platon Monokroussos. "On the privatization front, it is of essence the government delivers fast results to send a strong signal to financial markets."
That is easier said than done.
The socialist government, which came to power on a social welfare platform, has yet to launch a single state sale in 18 months in power and must set up a privatization agency within weeks to meet its target.
It must also start to sell state property, estimated at up to 300 billion euros but often entangled in legal complications.
"The 50 billion euro target is not achievable," said Constantinos Mihalos, head of the Athens Chamber of Commerce. "Share values are very low right now because of the recession."
At the same time, Greece needs to deliver on pledges to reform a chronically inefficient tax system that has relied too much on middle class salary earners and let wealthy tax evaders off the hook, producing disappointing revenues this year.
Finance Minister Evangelos Venizelos told Reuters in an interview on Friday that Greece would tap for the first time private-sector expertise but tax offices around the country are notoriously resistant to any change.
"A greater effort is needed to rein in tax evasion and broaden the tax base in a bid to bring the ratio of revenues to GDP closer to euro area average and reduce expenditure and waste in the broader public sector," Monokroussos said.
Investors have feared that default by Greece would send shockwaves through the world finance system with some commentators saying such an eventuality could call the whole euro zone into question.
Another hurdle is the law on a uniform pay scale for the public sector, sure to cut further the salaries of civil servants who have already seen their pay reduced by an average 15 percent as a result of a wave of austerity measures to secure the 110-billion-euro bailout last year.
On Saturday, euro zone finance ministers approved a 12 billion euro loan Greece needs to avert default.
The IMF will meet on July 8 to approve the 12-billion euro loan tranche, which is expected to be handed over by July 15 and allow Greece to avoid the immediate threat of debt default.
But the country still needs the second rescue package, which is also expected to total around 110 billion. EU officials will now look at how private creditors can be involved voluntarily so that rating agencies do not declare the rescue a "credit event."
Keep a very close watch on this unique corner of the commodities markets....
The market for Rare Earths is completely out of whack. It's due to distortions from the Chinese monopoly. The West has spent the past 20 years sitting on its collective butt not understanding the seriousness of this strategic resource-based issue. The chickens have come home to roost.
A few weeks back, I alerted the subscribers of my investment letter,Energy & Scarcity Investor, that the Chinese would be ramping up their stockpiling of Rare Earth products. The very next day, news hit the wires that Rare Earth prices are skyrocketing. Dysprosium oxide prices, for example, doubled in the first two weeks of June. Price and availability are going nuts.
Beryllium prices are not on a tear...yet. But I am very bullish about the long-term prospects for this "minor metal." The Daily Reckoning faithful may recall my column from June 7 entitled, "Beryllium...Even Sexier Than it Sounds." I mentioned a couple of beryllium plays, while also asserting, "The rare earths are one of the very few industries that possess robust long-term, growth potential, even if global economic activity continues to disappoint."
Well I'm back today to pound the drum again on this unique rare earth. Beryllium demand might receive a significant bump over the next few years, if a developmental nuclear energy technology takes hold. This one could be a game-changer.
Beryllium has phenomenal heat-flow characteristics. It cools off very quickly. So take that idea, and now mix beryllium with uranium. You can build fuel rods with much greater ability to transfer heat away. That is, you can heat up the fuel rods and they'll cool down a lot faster. In theory, therefore, if you exposed hot beryllium alloy fuel rods to air, they wouldn't melt down on you.
This is what did NOT happen at Fukushima, Japan, with the old- technology fuel rods that are zirconium-clad uranium. The Japanese rods – as with all fuel rods, everywhere across the world – held the heat and needed cooling water. When the system lost the cooling water, the Japanese plants experienced a series of catastrophic meltdowns. Big problems for a long time to come.
Researchers at Purdue University, Texas A&M and MIT are working on making the beryllium-uranium metallurgy work. It's not as easy as just adding a bit of beryllium to the uranium melt. It's a much more complex engineering process than that. There's a lot of research ahead. But at this stage, it's very promising. The research is yielding excellent data.
How long will it take to get the beryllium idea running in the nuclear field? It's hard to say just now. But the up-side is that if beryllium winds up in the nuclear fuel cycle, it'll increase global beryllium demand by an order of magnitude.
Materion (NYSE:MTRN), a company with large beryllium resources and extensive processing abilities, is one that stands to benefit from rising beryllium demand...and rising prices.
There's a lot of shaking going on throughout the Rare Earth space. For the longest time, the spotlight has been on the two companies closest to production. That'sLynas Corp. (ASX:LYC), with its mine in Australia and its plant in Malaysia. And Molycorp, which is rebuilding its facilities in California.
If you read the generalized reportage about Rare Earths in the mainstream business press, a lot of it is pretty uninformed. The reporters just don't get the Rare Earth business. Not long ago I saw an article under a globally-recognized news feed, along the lines that Lynas and Molycorp will produce a large volume of Rare Earths by 2013 and the currently-tight world markets will settle down. Ergo, Rare Earth prices will fall.
Oh really? That sort of analysis is entirely wrong.
Lynas is having problems with its plant in Malaysia, and will likely not make the deadline of November 2011 for first runs of RE product – mostly lower-priced "light" Rare Earths by the way.
And Molycorp's "new plant" in California is still a bare patch of ground where they're pouring concrete footers. There's no floor. There's no structural steel. There's no roof. There's no new equipment installed. Nothing is running, in any industrial sense. And it's halfway through 2011.
So neither Lynas nor Molycorp are close to producing a final product and selling it.
Furthermore, in a general, it's hard for any one company to be fully integrated in the Rare Earth space, from mines to final end product. Mining ore, crushing and concentrating is the first step. Then there are numerous intermediate steps to upgrade the concentrate. There's downstream refining. Then there's cranking out the final product.
Each one of these steps takes a high level of understanding about the Rare Earth chemistry and mineralogy. It requires high levels of technology, strong managerial competence and plenty of financial depth.
When I see the hype that has surfaced about Lynas and Molycorp, it seems ridiculous to believe that the new-design, new-build, new-process will work seamlessly. Somebody will just cut the ribbon on the front door of the factory and then start pouring ore into one end of a big, magic machine.
A lot of people in this world know how to drill an oil well, then refine and deliver refined products to the marketplace. But the Rare Earth business is different. It's relatively small, and the Chinese dominate 97% of it. Here in the West, we have to rebuild our intellectual capital in Rare Earths expertise, as well as new-build every facet of Rare Earths production – from mining to logistics to refining to end-product fabrication.
The Rare Earths business is not easy. The successful players will have to do many things right, with few glitches, and be really competent. At the same time, the early players stand to make a lot of money.
Keep a very close watch on this unique corner of the commodities markets....
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