ChemicalImbalance_Feature,MarchArpil2012

Volume 14, Issue 2 - March/April 2012

Feature

Chemical Imbalance
Cerium Oxide Shortage Affects Industry Pricing
by Sahely Mukerji

A tiny element is creating big trouble in the glass and glazing industry. Cerium oxide, one of the 17 elements that compose rare earth elements, is the most efficient polishing material for glass. Many windshield repair manufacturers use cerium in scratch-removal systems. Float glass manufacturers also use cerium as a raw material in the glass melting process.

Glass industry users have experienced price hikes and a shortage of cerium in the last couple of years. And even though rare earths element prices have dropped recently, uncertainty regarding its availability remains in 2012.

China’s Role
China today controls 97 percent of the global rare earths element market, according to a November 18, 2011, Fortune article. The country has the world’s largest supply of such elements and has been ramping up production over the past two decades. Higher supply levels have resulted in a steep price drop. However, over the last few years, the Chinese government has reduced its export quotas drastically, which, in turn, has sent prices through the roof.

“The current global situation for cerium oxide is simple,” says Kerry Wanstrath, president of Glass Technology Inc., a glass scratch-removal company in Durango, Colo. “For the past 30 years, we have pushed away dirty industries that no one wants to do, either because of environmental reasons or the fact that those jobs are manual labor and hard dirt work for low pay. Well, over the same time period there have been willing souls who have capitalized on those opportunities and now control the amount of product available to the entire globe.” Those “willing souls” are the Chinese, he says. “In controlling the amount of product that is available for distribution you control the price.”

“As a user and supplier of cerium, Glass Technology had to get weekly price updates to make sure we were not selling the product below our new cost, this created a very stressful relationship between supplier and end users.”
—Kerry Wanstrath, Glass Technology Inc.

Cerium supplies became critically low in early 2011, says Steven White, product specialist at Salem Distributing Co. in Salem, N.C.

“China has steadily cut the export of cerium oxide internationally about 35 percent from 2010 levels, which were already 40 percent lower than in 2009,” White says. “China is consolidating and closing mines and limiting the mining, processing and the amounts allowed to ship out of the country, and has imposed a $100/kilogram export tax on pure cerium.”

In the middle of 2011, China doubled its export quota, but included more materials in the quota system, White says. “This led to a calculated decrease of 7 to 15 percent on rare earth material supply.”

“Our suppliers indicate that the Chinese reduced the amount of rare earth materials available for export by 45 percent,” says Drew Mayberry, president of Lenoir Mirror in Lenoir, N.C.

China exported 11,000 metric tons of rare earths through the first three quarters of 2011, according to a recent Forbes article.

The reason for China’s attempt to close and consolidate mining operations are reported publicly as “an environmental concern,” White says. “However, Mr. Lin of the Rare Earths Society says: ‘Prices of gold, oil and other commodities are all high. Why should the cost of rare earths not be high, too?’ [according to an article late last year in the Financial Times].”

“I don’t know if China actually reduced their output, but the simple fact that they made it very difficult to get cerium and the added export regulations created a waiting period that may have put certain cerium users in a very bad place,” Wanstrath says.
“This environment allowed them to raise prices systematically. Amazing how that works, that if you pay more for something scarce, it suddenly becomes available.”

The Chinese will continue to influence the supply of the mineral in the near future.

“The general reports are that China would eventually want to export zero amounts of rare earths and protect their supply for their use only in the next several years,” White says.

Effects of the Shortage
Fabricators that need polished edges and bevels are most affected by this shortage, White says. “Shelving, trophies, storefronts and beveled mirror manufacturers have all seen their fabrication costs skyrocket due to the price of cerium,” he says. “One customer has reported that their cost per inch to fabricate on beveled mirror has doubled due mainly to the 6-to-10-time increase in cerium prices.

“Many suppliers began an allocation process, which, in turn, forced distributors like Salem Distributing to also impose allocations,” White says. “Some companies purchased extra inventory in 2010, speculating that cerium would be hard to get in 2011, and they were right. During the Asia Games and the Chinese New Year, exports from China were further hindered, resulting in many distributors and manufacturers outside of China to run extremely low on cerium oxide raw material.”

Like most folks using cerium in the industry, Wanstrath has experienced the price volatility. “We experienced a steady and steep increase over the past two plus years,” he says. “As a user and supplier of cerium, Glass Technology had to get weekly price updates to make sure we were not selling the product below our new cost; this created a very stressful relationship between supplier and end users.”

Brent Deines, president of Delta Kits Inc. of Eugene, Ore., agrees. “The prices are going up every day, and there seems to be fewer and fewer suppliers to choose from these days,” he says. “So far we have been able to meet the demands of our customers but it is becoming increasingly difficult.”

State of Global Cerium Supply
According to recent reports, the price of cerium and other rare earths elements are beginning to drop domestically in China, White says. “However with the export tax, the international market doesn’t see the dramatic price drops,” he says. “It is rumored that the Baotou steel plant [in Baotou, Mongolia] shut down in November [2011], and their subsequent buyout of large amounts of material from other producers in China, was an attempt to keep the prices of rare earths high.”

Despite unstable prices throughout 2011, rare earths prices are expected to stabilize some in 2012, according to the Forbes article.

The re-opening of a mine in Mountain Pass, Calif., owned by Molycorp Inc., will be a key factor in stabilizing prices in the U.S., Lenoir says. “While the Chinese sources will not be displaced completely, a new source domestically will relieve the constraint,” he says. The Molycorp mine shut down in 2002 because of competition from cheaper Chinese suppliers, but resumed operation in December 2010.

Backed by $1 billion in private equity from Resource Capital Funds in Denver, Molycorp began selling rare earths in October 2011, and soon after announced third-quarter net income of $43.7 million, versus a loss of $10.1 million a year earlier.

The Australian mine of Lynas Corp. is another source for rare earths elements, White says. “However they are not scheduled to be at full capacity until 2013,” he says. “Their primary goal will most likely be to focus on the higher end rare earths, which can sell for 2-10 times what cerium oxide sells for. Also, it is anticipated that they would only be able to supply 35 percent of the world’s supply.”

In other words, another product might be needed to take the place of cerium until its supply gets in synch with its demand.

Handling the Cerium Shortage
Today, “the overall supply of cerium oxide has stabilized due to a decrease in demand worldwide,” White says.

“Cerium is more readily available today than it was six to nine months ago,” Mayberry says.

Wanstrath agrees. “It has been only the past few months where we have seen some relief.”

Although the availability has improved, the cost has not dropped. “We have responded by monitoring our usage much more carefully than we had in the past,” Mayberry adds.

For now, cerium suppliers are exploring alternatives, such as cerium impregnated wheels and compounds for slurries that don’t contain cerium oxide, White says. “The cerium impregnated wheels have been on the market for many years, but (until recently) have not been able to gain overwhelming market share due to their difficulty in use and due to the fact that cerium oxide slurry polishing quality is currently still the highest,” he says. “The alternative compounds so far can approach the speed and quality of cerium oxide, but the best materials cost close to what cerium can be obtained for.”

“Guardian Industries of Auburn Hills, Mich., is working to ensure even greater efficiencies in the use of current materials, while also investigating viable alternatives to fit our manufacturing needs,” says Earnest Thompson, director of corporate marketing and brand management. “The issue has been on our radar for some time, so recent developments are not a surprise.”

As for what the New Year will bring, “I was unable to polish my crystal ball because of the cerium shortage, therefore my forecast is a bit foggy,” Wanstrath says. “But there is a major U.S. supplier of cerium in its raw form that is scheduled to come online later this year, so it should help ease the pressure. However, the Chinese may start to ease export restriction, thus taking some of the luster away from a new start-up anticipating high profits from their new production facility. Let the game continue.”

White concludes: “We are all simply holding our breath.”

Sahely Mukerji is the editor of AGRR™ magazine. She can be reached at smukerji@glass.com. Follow her on Twitter @agrrmagazine, read her blog at http://fortherecord.agrrmag.com/, and like AGRR magazine on Facebook to receive the latest updates.