Global drivers for rare earth demand Suzanne Shaw & Judith Chegwidden Roskill Information Services August 2012

Roskill Approachable. Independent. Expert.

Disclaimer

The statements in this presentation represent the considered views of Roskill Information Services Ltd. It includes certain statements that may be deemed “forward-looking statements”. All statements in this presentation, other than statements of historical facts, that address future market developments, government actions and events, are forward-looking statements. Although Roskill Information Services Ltd. believes the outcomes expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include changes in general economic, market or business conditions. While Roskill Information Services Ltd. has made every reasonable effort to ensure the veracity of the information presented it cannot expressly guarantee the accuracy and reliability of the estimates, forecasts and conclusions contained herein. Accordingly, the statements in the presentation should be used for general guidance only.

Roskill Approachable. Independent. Expert.

Summary

 Demand by element in 2012  A more detailed look at demand in:  Permanent magnets

 Phosphors  Demand by region  Outlook for demand

Roskill Approachable. Independent. Expert.

Major markets for rare earths in 2012

Roskill Approachable. Independent. Expert.

Estimated demand for rare earths by element in 2012 Other HREEs magnets, lasers, phosphors, glass, metallurgy, other

Pr Other HREEs 3% 5%

Pr

Y 7%

Ce 40%

Y

Pr magnets, phosphors, ceramics, metallurgy, polishing, other

Y phosphors, ceramics, other

Nd 18%

La metallurgy, catalysts, glass, phosphors, ceramics, polishing, other

Nd

La La 26%

Ce polishing, metallurgy, catalysts, glass, phosphors, ceramics, other

Nd magnets, ceramics, metallurgy, glass, catalysts, phosphors, other

Source: Roskill estimates Bloomberg

Roskill Approachable. Independent. Expert.

The ‘rare earths market’ does not exist. We cannot treat rare earths as a single commodity.

Roskill Approachable. Independent. Expert.

We are dealing with 15 elements that occur in nature in varying ratios – rarely consistent with the requirements of the market 45

World: Estimated production by element in 2012 (kt REO)

•

40 35 30 25

•

World ‘official’ production of ~110,000t in 2012 85-90% in China

20 15

•

10 5

0

•

World demand ~120,000t in 2012 65-70% in China

Source: Roskill estimates International trade statistics

Roskill Approachable. Independent. Expert.

Source: Roskill

Nd Sm (Gd) (Ho) (Ib)

Ceramics

(Nd) (Er)

Ce (Nd)

Phosphors

(Nd)

La Ce

Magnets

(Y)

Ce

Glass Polishing

La Ce

Glass

FCC/ Autocatalyst

La Ce

Water Treatment

Metallurgical

A market for “rare earths” – a misguided concept

Y Tb Eu

Y Nd Pr

Roskill Approachable. Independent. Expert.

Applications for cerium and lanthanum will account for nearly 70% of global demand for REOs in 2012 World: Main markets for cerium and lanthanum in 2012 (%) Ceramics Other 1% 10% Phosphors 3% Glass 11%

Polishing 19%

Metallurgy 30%

Catalysts 26%

Source: Roskill estimates International trade statistics

Roskill Approachable. Independent. Expert.

Many minor applications for neodymium but magnets are the market driver World: Main markets for neodymium, praseodymium and dysprosium in 2012 (%) Glass Phosphors Ceramics Other Polishing 1% 3% 5% 1% 1% Catalysts 1%

Metallurgy 2%

Magnets 86% Source: Roskill estimates International trade statistics

Roskill Approachable. Independent. Expert.

While the high value phosphor market is the main application for Y, Eu and Tb, the use of Y in advanced ceramics is often forgotten World: Main markets for yttrium, europium and terbium in 2012 (%) Other 1%

Ceramics 44%

Magnets 1%

Phosphors 54%

Source: Roskill estimates International trade statistics

Roskill Approachable. Independent. Expert.

Permanent magnets

Roskill Approachable. Independent. Expert.

Demand for rare earths in permanent magnets estimated at 25,500t in 2012 • 98% NdFeB, growth driven by consumer electronics, standard automotive, air conditioning, electric bicycles

Demand for rare earths in permanent magnets, 2000 to 2017 (Nd in 2000 = 100) 500 450 400 350 300 250

• 2% SmCo for specialist, high temperature applications

200 150 100 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f 2014f 2015f 2016f 2017f Nd

Pr

Dy

Gd

Tb

Sm

• ~75% China • ~20% Japan and other Asia

Source: Roskill estimates Bloomberg

Roskill Approachable. Independent. Expert.

Over the last decade demand for Nd more than doubled – driven by increased use of NdFeB magnets in electronic equipment rather than “green” applications 40,000

World: Demand for rare earth elements in magnet manufacture, 2000 and 2010 (tREO)

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

2000

2010 Tb

Gd

Sm

Dy

Pr

Nd

Source: Roskill estimates International trade statistics

Roskill Approachable. Independent. Expert.

Over the next 8 years demand for NdFeB magnets is forecast to grow by around 9%py – accelerated growth after 2016 1,400

12,000

1,200

10,000

1,000 8,000 800 6,000 600 4,000

400

Magnet value (US$M)

Magnet production (kt)

World: Permanent magnet production and value by type, 2005 to 2020

2,000

200 0

0

NdFeB production

Other permanent magnet production

NdFeB value

Other permanent magnet value

Source: Bernecki, Clagett Trout, Permanent Magnets 2010-2020 International trade&statistics

Roskill Approachable. Independent. Expert.

China will maintain its position as the leading supplier of NdFeB magnets World: NdFeB magnet production by region, 2005 to 2020 (kt) 140

120

100

80

60

40

20

0 2005

2006

2007

2008

2009 China

2010f Japan

2011f

2012f

Europe

2013f

2014f

2015f

2016f

2017f

2018f

2019f

2020f

Other regions (including USA)

Source: Bernecki, Clagett Trout, Permanent Magnets 2010-2020 International trade&statistics

Roskill Approachable. Independent. Expert.

Will future growth come from wind turbines? Global growth in wind turbine capacity, 1996 to 2011 (MW) 300,000

• Global growth in wind turbine capacity of 27%py 2000 to 2011

250,000

200,000

150,000

• Global capacity could reach 450GW by 2020, led by growth in China

100,000

50,000

0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Annual

Cumulative

Source: Global Wind Energy Council

Roskill Approachable. Independent. Expert.

Growth in wind energy dominated by China Top 10 cumulative capacity, Dec 2011 (%)

Top 10 new installed capacity, Jan-Dec 2011 (%) Others Portugal 13% Canada 2% 2%

Others 13%

China 26%

UK 3%

France 2% Spain 3%

Italy 3% France 3%

Sweden 2% China 44%

Italy 2% Canada 3% UK 3%

Germany 5%

India 7% USA 20%

Spain 9% Germany 12%

India 7% USA 16%

Source: Global Wind Energy Council

Roskill Approachable. Independent. Expert.

Direct drive turbines containing NdFeBs • Very little of the current installed capacity contains rare earths. Only new design, large-size direct drive turbines rely on large quantities of NdFeB magnets • Direct drives are favoured for large offshore turbines. These turbines have a higher production cost but are more efficient and reliable • The European Joint Research Centre estimates that turbines containing permanent magnet motors will account for 15% of market share by 2020, increasing to a possible 20% by 2030 • Optimistic forecasts predict direct drives to grow by 50-60% 2012-2013, led by growth in China, followed by slower growth of 10-20% to 2015 once penetration stabilises • However, companies still offer traditional geared models for smaller turbines and could easily revert to this technology if Nd prices rise to unsustainable levels • What is the future for direct drives in China? Source: Bloomberg

Roskill Approachable. Independent. Expert.

Will future growth come from HEVs? 10,000

World: Forecast production of EVs/HEVs by type, 2010 to 2025 (000 units)

9,000 8,000 7,000

• Production of EVs/HEVs could reach 3.2-9.2 million by 2020 • In particular, HEV motor systems often rely on NdFeB magnets

6,000 5,000 4,000

• Toyota and others are looking at induction motor as an alternative, if the price of Nd becomes unsustainable

3,000 2,000 1,000 0 2011e

2012f

2013f

2014f

2015f

2016f

2017f

2018f

2019f

HEV (NiMH)

HEV (Li-ion)

PHEV (Li-ion)

BEV (Li-ion)

Pessimistic total

Optimistic total

2020f

Source: Roskill estimates Bloomberg

Roskill Approachable. Independent. Expert.

Factors affecting future consumption of Nd, Pr and Dy in magnets • Demand for REEs in magnets is forecast to grow at 6-8% to 2016 – much of this growth will be related to continuing demand for use in consumer electronic equipment (as well as electric bicycles in China)

• Higher growth rates likely from 2016 if “green technology” applications materialise • Concerns about high prices and availability could limit the extent to which NdFeB permanent magnet direct drives are adopted for wind turbines • Similarly, motor manufactures are seeking alternatives to permanent magnet motors in electric vehicles • Dy is seen as the limiting factor and research is underway in Japan and the USA to identify ways of reducing intensity of use – already cut by half in some magnets

• Hitachi, Showa Denko and Mitsubishi Materials are all researching ways of recycling REEs from discarded hard disc drives and other appliances

Roskill Approachable. Independent. Expert.

Phosphors

Roskill Approachable. Independent. Expert.

Demand for rare earths in phosphors and pigments estimated at 8,750t in 2012 450

Demand for rare earths in phosphors and pigments, 2000 to 2017 (Y in 2000 = 100)

• Driven by growth in phosphors for fluorescent lamps in LCD backlights and general lighting

400 350 300 250

• But new LED technologies require less phosphor

200 150 100 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f 2014f 2015f 2016f 2017f Y

Ce

Pr

La

Eu

Gd

Tb

Nd

Er

• ~65% China • ~20% Japan and other Asia

Source: Roskill estimates Bloomberg

Roskill Approachable. Independent. Expert.

Demand for REEs in phosphors grew steadily between 2000 and 2010 at 4-5%py - growth over the next five years is forecast at 6-8%py as the negative impact of declining CRT sales is factored out World: Estimated consumption of selected REEs in phosphors 2000-2017f, (tREO) 9,000 8,000

• Demand for REEs in phosphors was limited in the last decade by the decline in demand for CRT display screens; phosphors are used in LCD screens but at a lower intensity than in CRTs

7,000

• Most of the growth has come from lamp phosphors used in fluorescent lamps – latterly driven by phasing out of incandescent lamps and increasing use as LCD backlights

6,000 5,000 4,000 3,000 2,000 1,000 0 2000

2012 Tb

Eu

2017F Y

• Beyond 2017/18 rates of growth may depend on the extent to which LED lamps replace fluorescent lamps

Source: Roskill estimates

Roskill Approachable. Independent. Expert.

In 2002, CRT screens accounted for 30% of phosphor demand – by 2011 it was just 1% World: Phosphor market 2002 and 2011 (%) 100 90

80 70 60

PDP

%

CCFL LCD backlight 50

CRT Fluorescent tube (3 wave)

40

Fluorescent tube (white) 30 20 10 0 2002

2011

Source: Advanced Materials, Japan

Roskill Approachable. Independent. Expert.

Factors affecting future consumption of Y, Eu and Tb in phosphors • Demand for REEs in phosphors forecast to grow at 6-8% to 2017 – much of this growth will be related to continuing demand for rare earth phosphors in fluorescent lamps

• The heavy rare earths used in phosphors are not vulnerable to substitution in the medium-term. Extensive research into alternatives has not been successful • Research is now focused on increasing phosphor efficiency and reducing the use of high value REEs, such as Eu and Tb, as dopants • Substitution of LED lamps for fluorescent lamps could reduce rates of growth in the longer term. LEDs use less rare earth phosphors in their manufacture – and some use none • In Europe a system for recycling fluorescent lamps has been in place for some time – but until 2012, rare earths were not recovered. Rhodia is processing materials recovered from waste lamps at two plants in France and could produce “several hundred tonnes per year”

Roskill Approachable. Independent. Expert.

Other applications

Roskill Approachable. Independent. Expert.

Demand for rare earths in metallurgical and catalyst applications Demand for rare earths in metallurgy, 2000 to 2017 (La in batteries in 2000 = 100)

1,200

Demand for rare earths in catalysts, 2000 to 2017 (La in FCCs in 2000 = 100)

250

1,000

200 800

150 600

100

400 200

50

0

0

La

Ce

Ce

La

Nd

Gd

Pr Hatched - batteries Solid - other

La

Ce

Ce

La

Nd

Ce

Hatched - FCCs Solid - autocatalysts Spotted - other

Source: Roskill estimates Bloomberg

Roskill Approachable. Independent. Expert.

Demand for rare earths in polishing and glass applications Demand for rare earths in glass, 2000 to 2017 (Ce in display panels in 2000 = 100)

Demand for rare earths in polishing, 2000 to 2017 (Ce in traditional applications in 2000 = 100) 250

120

200

100 80

150

60 100

40 50

20 0

0

Ce

La

Pr

Nd

Ce Solid - traditional applications Hatched - electrical components

Ce

La

Er

Nd Hatched - display panels Solid - optical glass Spotted - other

Source: Roskill estimates Bloomberg

Roskill Approachable. Independent. Expert.

Regional demand

Roskill Approachable. Independent. Expert.

China will continue to dominate global demand World: Total demand for rare earths in China and ROW, 2000 to 2017 (%) • China accounts for nearly 70% of demand in 2012

100%

90% 80% 70%

• Chinese demand will continue to grow at the expense of ROW

60%

50% 40% 30% 20%

10% 0%

China

ROW

• Chinese demand is expected to exceed 70% by 2019/20

Source: Roskill estimates

Roskill Approachable. Independent. Expert.

China is the largest market for rare earth oxides and metals – and demand is increasingly from higher value applications such as magnets and phosphors, rather than lower value applications in metallurgy and agriculture

Magnets

9% 6%

23%

Metallurgy Catalysts

7%

Polishing 8%

81,500t

Glass

in 2012

Phosphors Ceramics

10%

23%

Other

14%

Source: CREIC and Roskill estimates

Roskill Approachable. Independent. Expert.

Outlook for demand

Roskill Approachable. Independent. Expert.

Growth in demand for neodymium in magnet applications will continue to be the main driver in the LREE sector World: Forecast demand for LREEs 2000 to 2017 (La in 2000 = 100) 800 700 600

500 400 300 200 100 0

La

Ce

Pr

Nd

Sm

Source: International trade statistics Source: Roskill estimates

Roskill Approachable. Independent. Expert.

Manufacturers have recognised limitations on supply of Tb and Dy – Tb was engineered out of magnet formulations and research continues into reducing the Dy content of the magnet alloy World: Forecast demand for HREEs 2000 to 2017 (Eu in 2000 = 100) 7,000

6,000 5,000 4,000 3,000 2,000 1,000 0

Eu

Gd

Tb

Dy

Er

Y

Ho,Tm,Yb,Lu

Source: Roskill estimates

Roskill Approachable. Independent. Expert.

Meeting the demands of the market • In 2012 there is a discontinuity between the natural occurrence of REEs and the ratio in which they are consumed • The likely shortages of heavy rare earths (and possibly neodymium) will also occur in China – how will this affect Chinese government policies – could it lead to more restrictions on supply to the ROW • Supply of neodymium is tight but should ease from 2014/15 – will this additional supply be sufficient to assure potential users of NdFeB magnets for wind turbines and electric vehicles that feedstock is sustainable? • It is unlikely that there will be any significant supply of HREEs from the ROW before 2016/17 – companies dependent on a secure supply of dysprosium, terbium and europium rely on the developing dynamics of the REE industry in the south of China

Roskill Approachable. Independent. Expert.

Roskill Consulting Group • • • • •

Market assessments Feasibility studies Industry analyses Due diligence Competitive evaluation studies

Facing a major decision? We help you explore the impact on the market - and the impact on you

Contact Judith Chegwidden [email protected]

Roskill Approachable. Independent. Expert.