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Foundry Daily News

22. November 2007

Metal mania

GABORONE, Botswana--Japanese government officials are scrambling around the world while companies are nearly on their knees begging foreign governments to sign partnerships.

The moves are part of a drive to prevent a "rare-metal shock," which some say could prove as devastating for the Japanese economy as the subprime loan crisis and the recent surge in oil prices.

Without a stable source of rare metals, Japanese high-tech manufacturing--the hallmark of Japanese craftsmanship and industry that has fueled economic growth--could grind to a halt.

The Ministry of Economy, Trade and Industry stipulates 31 types of rare metals, sometimes referred to as the "vitamins for industries." Japan is almost completely devoid of these mineral deposits, an unhealthy situation that forces the country to rely heavily on imports.

These metals are becoming increasingly scarce, exacerbating Japan's efforts to secure a steady supply of these resources. Furthermore, prices are soaring on robust demand sparked by economic growth in developing countries.

Many of the problems Japan faces in obtaining rare metals stem from China, a major producer of rare metals that has become a big consumer.

Japan has stepped up its "resources diplomacy" by wooing countries in resource-rich Africa. But competition is steep.

Underscoring the potential crisis facing Japanese manufacturers was the concern voiced at the end of October by Takehiro Kamigama, president of TDK Corp.

Neodymium may not be a household word, but it was on Kamigama's mind after TDK announced its midterm earnings results.

"Soaring neodymium prices have taken a chunk out of our profits," Kamigama said.

Although TDK posted increases in both sales and profits, higher costs for neodymium and other materials ate away 4.5 billion yen in profits.

Neodymium is a rare-earth element. Powerful neodymium magnets are indispensable for producing smaller high-tech products, including hard disk drive magnetic heads, for which TDK dominates the global market.

Neodymium prices have soared four- to fivefold over the past five years, while indium prices have risen 8.5-fold and nickel costs seven times as much.

In comparison, crude oil prices increased by threefold to fourfold over the same period.

If companies cannot absorb rising production costs, they may have to pass on the expenses to consumers.

"We are discussing whether to raise our prices, while considering partnerships (to secure rare metals)," Kamigama said.

Showa Denko KK, a major chemical products manufacturer, produces high-performance motors for hybrid vehicles. The company in September opened a rare-earth magnetic alloy plant in Jiangxi, China, one of the world's most prominent rare-earth mineral production centers.

The plant is a joint-venture with Chinese companies.

"China is taking (export)-restraint measures as a national policy, which is driving up prices," said Showa Denko official Katsunobu Sato.

Shigeo Nakamura, president of Advanced Material Japan Corp., a trading company that specializes in rare metals, warned: "We are facing a rare-metal panic. Everywhere we go, we are going up against China."

The situation is exacerbated by the fact that output of rare metals is small while production areas are located in only a few spots.

In an attempt to ensure stable supplies, Akira Amari, Japan's economy, trade and industry minister, visited South Africa and Botswana from Nov. 15 to 17.

In a meeting with South African President Thabo Mbeki, Amari said, "Let us build a win-win relationship bridging South Africa's resources and Japan's technologies."

Japan is also courting Central Asian countries in its "resources diplomacy" effort.

On Nov. 14, Prime Minister Yasuo Fukuda suggested to Kyrgyzstan President Kurmanbek Bakiyev in Tokyo: "Why not raise the interest of Japanese firms for your potential rare metal resources?"

Japan desperately wants to end its reliance on China, which accounts for more than 90 percent of the world's output in rare-earth metals. Currently, as much as 88 percent of Japan's rare-earth metals come from China.

China has restricted exports and is increasing imports of some metals to feed its growing domestic demand. The country is also trying to acquire mining rights overseas.

Chinese President Hu Jintao earlier this year visited South Africa, where Mbeki described China as the country's most important partner.

China has also invested in a nickel mining exploration venture in Myanmar (Burma).

"China's going to have Japan by the throat," a Tokyo official said.

For Tokyo, there is no denying that resource-rich Africa is the key.

South Africa is the core country of the South African Development Community (SADC), an organization comprising 14 member nations.

South Africa holds 80 percent of the global share of platinum. It is also home to rich manganese deposits that likely include rare metals.

Other SADC countries are rich in nickel, cobalt and other rare metal resources.

A Japanese trade ministry official said, "We hope to make a breakthrough into the whole SADC region."

But Japan has already run into problems.

In the summer, Japan Oil, Gas and Metals National Corporation (JOGMEC), an entity under the jurisdiction of the trade ministry, sought a mineral prospecting venture with the Anglo Platinum group, the world's leading producer of metals in the platinum group.

"We were snubbed. The price for mining rights were humongous," a JOGMEC official said.

Tim Aiken, general manager of Anglo, based in Johannesburg and London, said the group already has sufficient funds and technology, and thus has no need to collaborate with Japan.

Japan has had success elsewhere.

In April, the government, hand-in-hand with the private sector, signed on to a Japan-Kazakhstan uranium mining cooperation project.

But the same "resources diplomacy" may not work in Africa, where resource development is led mainly by private mining companies based in England and Australia.

Basically, Japan may have arrived too late.

One South African source said all rights to promising platinum deposits are held by major companies, and the only remaining areas are either too dangerous or unprofitable.

But Japan is not giving up.

In late October, ambassadors and officials from the 14 SADC countries met in Tokyo for an investment seminar. The representatives lamented the export drain of mineral resources from their countries.

The South African minister of energy and mines noted that the country's resources have been exported as raw materials for more than 100 years. The minister predicted that South Africans will soon rise up against the exploitation by the major mining companies.

For Japan, promoting Africa's local interests is considered the best bet. The plan is for Japanese companies to tie up with African companies and promote industrial policy measures that brought about Japan's postwar high economic growth.

After a level of trust is established, Japan can then seek to acquire mining rights for rare metals.

It is a long-term strategy that will require much patience.

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