Rich in ore
March 22, 2011
In December 2010, the Chinese government announced 35 percent cuts in the export of its rare earth elements - a crucial manufacturing component in nearly all consumer electronics, and other devices like wind turbines, light bulbs, and even missles.
These cuts, which the government did as part of an effort to protect the environment and its resources, came after an even higher slash in rare earth exports earlier in 2010. China is the undisputed king of the rare earth industry controlling 97 percent of the global market.
Many gadget manufacturers are worried that a decreased supply will lead to higher prices on consumer goods, and will thus cut into their profit margins.
But China's move has been good news for the Silmet, an Estonian refinery, which is one of the largest producers of rare earth elements and rare metals in Europe. The company is now in an enviable position as it has the only fully functional rare earth separation plant outside of China.
A massive price hike
Because of the China's recent supply cut, the price for the cerium, for instance, has gone up twentyfold – from 2.50 euros ($3) a kilogram in 2010 to 50 euros ($70) a kilogram today.
Cerium ore is one of four rare earth elements that are rifined a Silment, an Estonian company located in the small town of Sillamäe, in the northeastern part of Estonia near the Russian border.
Other rare earths, including praseodymium and neodymium, are used in the making of iPods and hybrid electric vehicles. Cerium is used as part of the glass in nearly all LCD televisions, and car windsheilds.
"Your UV cut glass windshield which keeps you from getting sunburn while you drive has cerium added to it which cuts down on the UV which comes through the windshield," explained David O'Brock, Silmet's CEO, in an interview with Deutsche Welle.
Non-stop separation process
To get to the pure elements, Silmet buys raw loparite ore, which is mined outside of the Russian town of Murmansk, which is the largest city north of the Arctic Circle (population: 300,000) and sits about 1500 kilometres due north of Tallinn.
Then, the ore is sent away for "cracking" at another facility near the Ural Mountains, after which the resulting carbonates are sent by rail to Estonia where the separation process can begin.
"We have stainless steel what we call 'cameras' and in there is the dissolved solution of rare earths, light rare earths," O'Brock said. "And each camera takes a little bit and a little bit and a little bit more each out of the mixture until you get a pure element for each of the elements."
The extraction units operate continously throughout the day and night because the units have to be in equilibrium all the time, which keeps the elements from mixing with each other.
In addition to rare earths, Silmet also refines two non-rare earth metals – niobium and tantalum.
O'Brock added that these metals, which are also crucial in semiconductor manufacture, have kept the company from going bankrupt each time when the rare earth production has fallen, and helped the refinery to survive the recent financial crisis.
Demand continues to skyrocket
Though the Estonian factory produces 3,000 metric tonnes of rare earth elements per year, or two percent of the global market, by global standards, Silmet is still a tiny company. For now, it only serves 15 long-term customers in the car, glass, ceramic and fuel catalyst industries.
New inquiries about the cooperation are coming from around the globe, but the refinery is forced to turn them down.
"Unfortunately for us, our bottleneck has always been raw material," says David O'Brock. "We get our raw material from Russia and today we are not able to get enough raw materials to process as to what the market needs."
If the mining partner will increase the production of the ore, then Silmet's board might seriously consider whether to expand the production in the coming years.
Meanwhile high-tech companies across the globe will still be on the roller coaster because the demand and the price for the rare earths aren’t dropping anytime soon, which is why other new refineries are coming online in other parts of the world.
"Even if some Australian or US names, or other names start their production next year, it will take time until they reach a commercial scale of production," said Daniel Briesemann, a commodities industry analyst with Commerzbank, in an interview with Deutsche Welle.
He added that it's unlikely that this tight supply demand situation to ease over the next two, three or even four years.
"The market expects the supply deficit of almost 30,000 tonnes in 2014," Briesmann said.
Author: Ģederts Ģelzis, Sillamae, Estonia
Editor: Cyrus Farivar