Japan secures rare earths deal with Australia

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Japan has secured a tentative agreement with Australia to buy rare earths, key minerals used in the manufacturing of electronic products from car batteries to military equipment, in a strategic move that will help cuts its dependence on China, the world’s dominant producer.

Sojitz, a Japanese trading company that is the country’s largest importer of rare earths, said on Wednesday it had entered a “strategic alliance” with Lynas, an Australian-listed group that owns one of the richest deposits of rare earths in the world. The two groups were “investigating a long-term supply agreement”, Sojitz said.

The announcement came a day after Kevin Rudd, Australia’s foreign minister, told his Japanese counterpart Seiji Maehara in Canberra that Australia would be a long-term supplier of rare earths to countries such as Japan.

Lynas shares jumped 10.5 per cent to A$1.53 while shares in Sojitz rose 9 per cent to Y168.

Under the agreement, Sojitz said it would seek funding from the Japan Oil, Gas and Metals National Corporation, a Japanese state-affiliated investment body, to help pay for a $250m expansion of Lynas’ Mount Weld rare earth mine in Western Australia. Sojitz said it was seeking 9,000 tonnes of rare earths a year from Lynas over the next 10 years.

Lynas’s mine will start producing rare earths next year, and the company has already signed eight customer agreements, including a 10-year supply contract with Rhodia of France. Lynas said these agreements account for 70 per cent of the expected output of mine in its initial phases.

China accounted for 97 per cent of the world’s rare earths production last year. Concerns about its dominant market position escalated in September when Japanese traders reported their rare earth shipments were halted during an unrelated diplomatic dispute with China.

Supplies have only started to flow again in the last few days, according to traders and Japanese officials.

Japanese automobile and electronics makers are the world’s biggest consumers of rare earths, and several groups are looking to support more rare-earth mining outside China.

Toyota Tsusho, the trading affiliate of Toyota Motor, is examining deposits in India, Vietnam and Canada. Sumitomo, the trading house, has teamed up with Kazatoprom of Kazakhstan to develop finds in Central Asia, and Mitsubishi, another trader, is evaluating deposits in a former tin mine in Brazil alongside Canadian company Neo Materials.

Showa Denko, a chemical company, opened a rare-earth processing plant in northern Vietnam in May, as part of its plan to “establish a system for stable supply”.

The race to secure supplies has been intensified by Chinese attempts to add foreign rare earth assets to its already large domestic supplies.

Reaction in China to the Lynas-Sojitz announcement was muted. Yin Jianhua, rare earths specialist at Beijing-based consultancy Antaike, said the statement seemed to have a “whiff of propaganda” about it.

“It’s like they are saying, ‘look, if you, China, won’t sell it to me, I can buy it anywhere’,” he said. “In reality, after you sign the contract, getting the product is not such a simple matter.”

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