Rare Earths Fall as Toyota Uses Alternatives
By Sonja Elmquist - Sep 29, 2011 6:15 AM CT .
Rare-earth prices are set to extend their decline from records this year as buyers including Toyota Motor Corp. (7203) and General Electric Co. (GE) scale back using the materials in their cars and windmills.
Prices for cerium and lanthanum, the most abundant rare- earth elements, will drop by 50 percent in 12 months, Christopher Ecclestone, an analyst at Hallgarten & Co. in New York, has forecast. Neodymium and praseodymium, metals used in permanent rare-earth magnets, may fall as much as 15 percent, he said.
Makers of electric cars, wind turbines and oil-refining catalysts have sought to reduce use of the metals after China, which supplies more than 90 percent of the market, said in July 2010 that it would cut exports and clamp down on the industry. That boosted prices, encouraging mining companies to develop new prospects and buyers to find alternatives.
“If you think you can keep raising the prices for those materials and still keep your customers, you’re crazy,” Jack Lifton, co-founder of Technology Metals Research, said in a telephone interview. “The principal customer for rare-earth metals is a global automotive industry using rare-earth permanent magnets. That industry will engineer this stuff out.”
Declines in August and September pared a five-month, fourfold surge that brought the average price for eight of the most widely used rare-earth oxides to a record 396,850 yuan ($62,068) a metric ton in July, data from consultant Shanghai Steelhome Information show. The average price declined 13 percent from its July peak as of Sept. 27.
The Bloomberg Rare Earth Mineral Resources Index dropped 41 percent in the last three months, led by a 60-percent decline in Montreal-based Quest Rare Minerals Ltd. (QRM) Great Western Minerals Group Ltd., which explores in North America, climbed 4.6 percent in the period and is the only gainer on the 17-member benchmark.
Rare earths have been pushed lower because of selling by speculators, Michael Gambardella, a New York-based analyst at JPMorgan Chase & Co., said in a report last week. Tsunami- related disruptions in Japan and dumping of unpermitted material in China have undercut prices, while industrial substitution has driven “demand destruction,” said Sam Berridge, a Sydney-based analyst at Royal Bank of Scotland Group Plc.
“A greater focus on recycling and substitution, particularly by Japanese consumers, has resulted in tightness of demand easing somewhat for the lighter rare earths,” Berridge said by phone.
Rising prices for the so-called light metals, such as neodymium and lanthanum, have prompted automakers including Toyota, Asia’s biggest automaker, to look at reducing the use of relatively powerful and expensive rare-earth magnets in their vehicles. Some Toyota vehicles will be built with an induction motor, which doesn’t use rare-earth magnets, said John Hanson, a Toyota spokesman in Torrance, California.
“Moving from a fixed-magnet motor to an induction motor is a huge savings with regard to rare-earth metals,” Hanson said by phone.
“The Japanese are leading the push to replace, reduce and recycle their rare-earths consumption,” said Dudley Kingsnorth, chief executive officer of Perth-based advisory Industrial Minerals Co. of Australia. “Users are recycling rare earths wherever they can, using them more efficiently, particularly in the magnet industry where they are producing powerful magnets with smaller volumes.”
General Motors Co. (GM), the largest U.S. automaker, plans to sell a Chevrolet Malibu Eco next year that uses an induction motor, and otherwise cut down on magnets that use a lot of rare earths.
“The magnets are like God’s gift to electric motors,” Pete Savagian, GM’s chief engineer for electric motors, said in a telephone interview. “But we don’t always need that level of magnet. Even at prices we saw three and four years ago, there’s a more economic alternative, albeit at slightly less efficient outcome.”
The largest portion of demand for rare earths, one third, comes from generating electricity, according to Bloomberg Industries.
In August, GE announced the development of wind-turbine generators that will reduce dependence on the rare-earth materials prevalent in so-called permanent-magnet machines. Some current offshore wind turbines may contain as much as half a ton of the metals, according to Bloomberg Industries analysis.
“Everybody is going back to the drawing board and trying to redesign their generators to minimize the usage of permanent magnets,” said Steve Duclos, chief scientist and manager of material sustainability for GE Global Research. “In all of our businesses we’re looking to reduce our usage.”
W.R. Grace & Co. began selling this year an oil-refining catalyst with reduced lanthanum, a rare earth that has increased in price more than fourfold in the past year. Lanthanum improves the amount of gasoline refiners can extract from crude oil and is also used in hybrid-car batteries.
Half of the company’s customers had switched to the new formula, which offers the same performance and gives them “double-digit type percent decreases in their cost,” Grace Chief Financial Officer Hudson La Force III said on a conference call this month.
The development doesn’t worry Mark Smith, CEO of Molycorp Inc. (MCP), owner of the largest rare-earth deposit outside China.
Fluid-cracking catalysts have “always been one of the largest single markets for any of the individual rare earths,” Smith said in an interview at Bloomberg headquarters in New York. “We don’t see that deteriorating in any significant form.”
While rare-earth prices have fallen, demand will outpace supplies even with new mines in California and Australia expected to come online in 2014, Smith said.
“Like any market, you’re going to see up and down in the course of a month or two,” Smith said. “But the overall trend remains short supply, heavy demand.”
The ability to substitute many rare-earth applications will be limited, said Constantine Karayannopoulos, CEO of Neo Material Technologies Inc. (NEM), a Toronto-based producer of rare- earth magnets.
“All kinds of folks are trying to use alternative technologies,” he said by phone. “Longer-term, don’t expect these technologies to be in place this quarter or the next.”
GE’s Duclos says he has little doubt companies will find substitutes, sooner or later.
“It will depend on the element, it will depend on the usage, but getting 10-20 percent efficiencies out of the usage of an element is not that terribly difficult,” Duclos said. “What I don’t subscribe to is this idea that there’s nothing we can do.”
To contact the reporter on this story: Sonja Elmquist in New York at Selmquist1@bloomberg.net.
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Toshiba Falls on Westinghouse Report
By Ryan Woo - Sep 5, 2011 10:34 PM CT .
Toshiba Falls on Report It May Buy Shaw's Westinghouse Stake Tomohiro Ohsumi/Bloomberg
Toshiba, which already owns 77 percent of Westinghouse, is in talks to buy out Shaw Group’s 20 percent holding in the Pittsburgh-based company, the Journal reported, citing people it didn’t identify.
Toshiba, which already owns 77 percent of Westinghouse, is in talks to buy out Shaw Group’s 20 percent holding in the Pittsburgh-based company, the Journal reported, citing people it didn’t identify. Photographer: Tomohiro Ohsumi/Bloomberg
.Toshiba Corp. (6502), Japan’s biggest maker of nuclear reactors, fell to the lowest in more than two years in Tokyo trading after the Wall Street Journal said the company may buy Shaw Group Inc. (SHAW)’s stake in Westinghouse Electric Co.
The shares dropped as much as 6.1 percent to 294 yen, the lowest since April 2, 2009, and were at 295 yen as of 11 a.m. local time. The Nikkei 225 (NKY) Stock Average declined 1.2 percent.
Toshiba, which already owns 77 percent of Westinghouse, is in talks to buy out Shaw Group’s 20 percent holding in the Pittsburgh-based company, the Journal reported, citing people it didn’t identify. Talks are still under way and a deal may be announced as early as today, according to the newspaper. Keisuke Ohmori, a Toshiba spokesman, declined to comment on the report.
“Assuming the news is true, the market is estimating that Toshiba may need to raise about 80 billion yen ($1.05 billion) worth of funds for the buyout,” Ikuo Matsuhashi, a managing director in Goldman Sachs Group Inc., wrote in a Japanese- language note dated today. “People might interpret this as Shaw Group exercising a put option because they’re downgrading their mid-term outlook for nuclear power business.”
Toshiba acquired its stake in Westinghouse for $4.16 billion in October 2006. Shaw Group, a Baton Rouge, Louisiana- based engineering and construction business, paid $1.08 billion for its stake, raising the money though a private placement. Ishikawajima-Harima Industries Co., a Japanese maker of heavy machinery, bought the remaining 3 percent.
Toshiba has slumped 41 percent since the record earthquake and tsunami that struck Japan on March 11 wrecked Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant. The company helped build four of the six reactors at the site. Shaw Group has declined 44 percent in New York trading in the same period.
To contact the reporter on this story: Ryan Woo in Singapore at firstname.lastname@example.org
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Atomic Power Needed to Save Economy: Noda
By Chisaki Watanabe - Sep 4, 2011 9:47 PM CT .
Sept. 2 (Bloomberg) -- Tobias Harris, author of the "Observing Japan" political blog and a former aide to ex-Democratic Party of Japan lawmaker Keiichiro Asao, talks about the nation's government and political environment. Harris speaks from Tokyo with John Dawson on Bloomberg Television's "On the Move Asia." (Harris spoke before the announcement of members for a new cabinet. Source: Bloomberg)
Sept. 2 (Bloomberg) -- The port city of Ishinomaki in northern Japan’s Miyagi Prefecture was one of the most severely damaged by the March 11 earthquake and tsunamis. Its residents seek to rebuild their lives after 3,161 people were killed, and as the search for the 793 missing continues. Ishinomaki is the hometown of Jun Azumi, the nation's new finance minister. Bloomberg’s Kyoji Iwai reports. (Source: Bloomberg)
Japan’s new Prime Minister Yoshihiko Noda in his first days in office started to deliver a difficult message to a public still in shock from the Fukushima nuclear disaster: Atomic power is needed to save the economy.
Nuclear power provided about 30 percent of the electricity in the world’s third biggest economy before the March 11 earthquake and tsunami. Now, about 80 percent of Japan’s 54 reactors are offline with more shutting for scheduled maintenance in the months ahead.
With the majority of opinion polls showing the public oppose the use of atomic power, Noda needs to convince his electorate so-called stress tests on reactors will make them safer to restart. Industry leaders have said they may shift production overseas if power supplies aren’t stable, threatening an economic recovery.
“There will be very little reserve electricity for peak hours in the winter and summer if the operating rate of reactors keeps falling,” said Yugo Nakamura, an analyst for Bloomberg New Energy Finance. Noda is “trying to avoid economic disruptions by restarting reactors after safety checks.”
Noda’s predecessor, Naoto Kan, called for Japan to end its reliance on atomic power after the world’s worst nuclear accident in 25 years. Public concern about safety has meant that reactors closed for maintenance haven’t been allowed to restart, forcing Japan this year to impose power-savings measures for the first time since the 1970s.
Japan’s gross domestic product shrank at an annualized 1.3 percent rate in the three months ended June 30, marking three consecutive quarters of declines, the Cabinet office said last month.
The new premier seems in agreement with Kan that Japan’s energy future should shift focus to renewable power, while saying for the current economy to grow nuclear power is needed.
“It’s a realistic option to use existing plants to a certain extent and develop nuclear technology until at least 2030 while aiming to decrease our dependency on atomic power,” Noda said in an article for the Bungeishunju magazine published on Aug. 10.
“We will build a framework so we can restart reactors shut for maintenance after ensuring they are safe following stress tests and gaining the understanding of local residents,” Noda said on Sept. 2 after appointing his Cabinet.
“It’s important for us to prepare for restarts,” he said in comments on possible power shortages next year.
Sixty-eight percent of respondents to an Asahi newspaper poll published on Aug. 8 said they wanted Kan’s successor to continue the policy of phasing out atomic energy.
Noda’s approval rating was 65 percent, according to a poll published yesterday by the Yomiuri newspaper, the country’s biggest. The Nikkei newspaper and Kyodo News put his popularity rating at 67 percent and 63 percent respectively. None of the polls gave a margin of error.
Noda named Yoshio Hachiro, 63, to be Trade and Industry Minister in his Cabinet lineup, giving him the responsibility to rebuild the ministry that has played conflicting roles in both regulating nuclear energy and promoting its use.
The government in July said it would set up a regulator outside of the ministry and in August, the previous minister, Banri Kaieda, fired the country’s top energy bureaucrats in what he called “sweeping” changes.
To address public anxiety, the government in July said electricity companies must carry out the stress tests on all nuclear stations.
Japan may submit the results of the checks to the International Atomic Energy Agency for review, Hachiro said yesterday on NHK Television.
“The current review system of Japan’s nuclear governing body has failed to earn the trust of the people,” Goshi Hosono, the minister in charge of dealing with the Fukushima nuclear disaster, said on the same program.
Plans to build more reactors were also shelved after the March 11 earthquake and tsunami caused three reactor meltdowns at Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant.
Winning public support for extending reactor lives or building new ones won’t be easy Kan said on July 22, a comment repeated by Noda last week.
Kan also talked about the power of the so-called nuclear village, the nexus of the power companies, regulators and politicians supporting the industry, in highlighting the difficulties in moving away from atomic power.
“I did feel that I was subject to criticism,” Kan said on the day he stepped down when asked about his decision to shut a nuclear station near Tokyo to beef up quake and tsunami defense.
The powerful interests behind the nuclear industry, which powered Japan’s economic rise in the 1970s and 1980s, may make it harder to reform the Ministry of Economy, Trade and Industry for Hachiro, who has a background in agriculture.
“Hachiro is capable. But he isn’t strong enough to stand up to METI bureaucrats,” Minoru Morita, a Tokyo-based independent political analyst, said by phone on Sept. 2.
Japan’s parliament on Aug. 26 approved a bill to subsidize electricity from renewable sources, in one of the last acts of the Kan administration. The use of clean energy sources will improve the country’s energy security and create new industries, Noda has said.
Japan should increase clean energy supply to 20 percent of the total in the 2020’s from the current 9 percent, he said in the Bungeishunju article.
“This crisis has the potential to revive Japanese industries in the long run,” Noda said.
To contact the reporter on this story: Chisaki Watanabe in Tokyo at firstname.lastname@example.org
Federal government sues major banks over Fannie and Freddie losses
The Federal Housing Finance Agency alleges they sold at least $189 billion worth of toxic mortgage securities to taxpayer-backed Fannie Mae and Freddie Mac. Here are some of the banks named in the suit.
Friday, September 2, 3:56 PM
The Federal Housing Finance Agency, the regulator overseeing Fannie Mae and Freddie Mac, on Friday sued 17 major domestic and foreign banks, alleging they sold at least $196 billion worth of toxic mortgage securities to taxpayer-backed Fannie and Freddie in the years leading up to the financial crisis.
The suits target Bank of America, Citigroup, J.P. Morgan Chase, Goldman Sachs and General Electric, among others.
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Fannie and Freddie executives knew these securities; subprime loans and other riskier products ; could lead to losses. But FHFA argues in its complaint that the securities were even shakier than Fannie and Freddie executive realized, because mortgage lenders had lied about the ability of borrowers to repay the loan or engaged in other fabrications.
Fannie and Freddie have lost nearly $200 billion as a result of the housing crash and the recession. Those losses largely have been plugged by taxpayers under a deal arranged in September 2008, when the government seized the two firms to keep them from failing.
The suits target the banking industry nearly three years after the housing market collapsed and credit markets froze up, forcing the government to commit hundreds of billions of dollars to stabilizing the financial sector. The abundance of mortgage-backed securities that banks created in the lead-up to the crisis has cost them dearly in recent years.
Bank of America, for instance, already has agreed to pay billions to settle some claims related to securities that went bad. The firm, whose stock has been battered this year, recently announced that it has set aside about $18 billion for additional litigation related to its mortgage portfolio. Last month, insurance giant American International Group sued Bank of America and its affiliates, seeking to recover more than $10 billion in losses on securities it said has been misrepresented.
In addition, a handful of the nation’s largest banks currently are embroiled in settlement negotiations with federal officials and state attorneys general over shoddy foreclosure practices that sparked a national uproar last fall. That settlement could cost the banks somewhere in the neighborhood of $20 billion in penalties and force them to revamp the way they service loans and deal with troubled borrowers seeking to stay in their homes.
Separately, New York attorney general Eric Schneiderman has undertaken an investigation into the way banks packaged and sold their mortgage-backed securities in an effort to determine the extent of any wrongdoing.
The FHFA’s actions against the banks are not be unprecedented.
In July, the agency filed a similar suit against UBS Americas Inc. in a federal court in New York, alleging federal securities law violations. The case accuses UBS of misleading investors who bought into pools of loans that had been packed together into mortgage-backed securities. The suit alleges that the company misstated certain facts and omitted others, including information about the creditworthiness of the borrowers and the underwriting practices used in making the loans.
The agency said this suit was intended to recoup losses suffered by Fannie and Freddie related to their $4.5 billion investment in securities sold by UBS.
Banking industry representatives, who spoke on condition of anonymity, said any fraud charge would be difficult to prove. They said the losses resulted from the surprising severity of the economic downturn. Moreover, they that Fannie and Freddie officials were major participants in the mortgage markets, not innocent bystanders.
“These are folks that were involved in creating these securities,” said one industry official. “The idea that Fannie and Freddie were victims in this, it defies credibility.”