China's Rare Metals Exports Curb Is Raising Gasoline Prices
We have another crisis, this time in rare earth metals. China produces 95% of these metals and has said it would reduce exports by 35% in 2011. These moves are causing the prices of these metals to skyrocket, as reported in the The Wall Street Journal (subscription required).
Chemical refiners of gasoline use rare earth metals. The increased cost of the metals is being passed on to consumer and amounts to about a penny a gallon.
Two of the most commonly used metals, anthanum and cerium, are used in the refiners' catalytic cracking units (FCCUs). The price of these elements has almost tripled between the second and third quarter of 2010, adding 25% to catalyst costs.
We have 150 U.S. refineries and about 100 FCCUs. "The typical 50,000 barrel-a-day FCCU uses an average of seven tons a day of catalyst to help remove impurities from what will become gasoline and diesel," the WSJ writes. The increase in rare earth metals is estimated to cost the refiner $147,000 per month.
The key question is whether rare earth miners outside China like Molycorp (MCP) in the U.S. and Lynas (LYCF) in Australia will be able to produce enough metals to make up for the shortfall. If not, look for prices of rare earth metals to keep rising and refining costs to follow.