Dec 17 2018
By Bo Seo
The ongoing feud between Australian rare earths producer Lynas and the Malaysian government has drawn the attention of the Japanese government and businesses that rely on the minerals to power its economy.
Hideto Nakajima, economic counsellor at the Japanese embassy in Kuala Lumpur, said the Japanese government was monitoring the situation and that it was prepared to intervene if necessary.
“We want Lynas’ operations to continue and it’s important that they comply with rules and regulations in Malaysia,” he said. “The embassy would like to support in any way it can to facilitate.”
The reaction from Japan, which receives about one-third of its rare earths needs from Lynas, follows the Malaysian energy and environment ministry’s surprise decision to make future licenses conditional on the company’s removal of 400,000 tonnes of radioactive waste from the country. One of Lynas’ key products, neodymium and praseodymium (NdPr), is used in the manufacture of industrial magnets, which are used extensively by makers of goods such as electronics and cars.
Lynas chief executive Amanda Lacaze had criticised the ministry’s decision as “policy based on politics, not politics based on science”.
Asked whether Japanese corporations like Sojitz, Lynas’ sole distributor in Japan, had been lobbying the Malaysian government for a change in the ministry’s ruling, Mr Nakajima said companies would communicate directly with authorities and Lynas.
A spokesperson for Sojitz said, “Sojitz is not in a position to respond to you about the questions related to the Malaysian government and Lynas. However, in either way, we will ourselves endeavour to meet demand from end users in supply of the rare earth.”
In 2011, Sojitz and Japan Oil, Gas and Metals National Corporation (JOGMEC), a government body, provided $US250 million in financing to Lynas for 8500 tonnes of rare earths per annum, for 10 years.
The investment was part of a broader effort by Japanese government and business to diversify their supply of rare earths away from China.
Australian National University professor Shiro Armstrong said, “until 10 years ago, China had a near monopoly on the supply of rare earths, with almost 97 per cent of global supply”. China sent shockwaves through the global market when it began clamping down on illegal and small-scale mining through export controls, culminating in a “rare earths crisis” after China cut exports by 40 per cent in 2010.
Professor Armstrong said this directly affected Japan because rare earths were essential to the manufacture of some of its key exports: high-technology parts, electronics, and defence technologies. “Japan is one of the largest consumers of rare earths in the world,” he said.
China was later forced by the World Trade Organisation to relax its export restrictions. But New York University Professor Sophia Kalantzakos said the world not had learnt its lesson about the importance of diversifying supply.
“The world has yet to come up with a long-term viable alternative to rare earth mining and production outside of China,” she said. “China continues to dominate the market and if Lynas’ operation suffers it will become the near exclusive supplier of the elements.”
More recently, in 2016, Sojitz and JOGMEC struck a deal to save an ailing Lynas from collapse through emergency funds and debt relief.
JOGMEC declined to comment and said in a statement, “we reluctantly acknowledge the announcement of the Malaysian government”.
The Lynas dispute could become an unexpected tension point at a time of renewed enthusiasm in the Japanese-Malaysian relationship.
As part of Malaysia’s revived “Look East Policy”, Prime Minister Mahathir Mohamad has made three state visits to Japan since his election in May. The Japanese government will also grant Malaysia access to $US1.8 billion of Japanese capital by allowing Malaysia to issue 10-year “samurai bonds” in Japan by March 2019.
Where the Malaysian government goes from here on Lynas is expected to be on the agenda of Wednesday’s cabinet meeting.
Lynas shares have lost 9 per cent over the past year, but are down 43 per cent from a 12-month high of $2.89 in May. – Financial Review.