The skyrocketing cost of rare-earth metals from China is pushing up the cost of gasoline production in the U.S., the latest sign of the wide-reaching impact of Beijing’s decision to restrict exports of the minerals.
Prices for some of the chemicals refiners use to process gasoline have risen exponentially after China, which controls about 95% of the world’s rare-earth supply, said it would reduce exports of the metals by 35% in 2011.
The increase could raise gasoline-production costs by about a penny a gallon and potentially lead some refiners to cut back on fuel production to protect their profits.
Rare earths are elements that go into high-tech batteries, television sets and military technology. Two of the most commonly used in the catalyst component of refiners’ gasoline-making fluid catalytic cracking units, or FCCUs, are lanthanum and cerium, both of which more than tripled in price between the second and third quarters of 2010, according to Australian rare-earth supplier Lynas Corp. LTD.
Although rare earths account for only up to 4% of catalysts used in these units, their recent price increase has added as much as an extra 25% to catalyst costs, according to the National Petrochemical and Refiners Association, a group representing the sector.
The increase comes as U.S. refiners are getting back on their feet financially after years of low demand and tight profit margins. Refiners such as Valero Energy Corp. and Sunoco Inc. sold some of their plants in 2010 to rid themselves of poor-performing assets.
“Any kind of increase, especially in today’s markets and conditions, is significant,” said NPRA President Charlie Drevna.
The increase could pinch refiners even more if crude-oil prices suddenly spike past $100 a barrel, as their process and raw-material costs would rise faster than they can pass them along to consumers, industry analysts said. A slower rise in crude prices would allow refiners some wiggle room in regaining their costs at the pump.
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Source: Wall Street Journal
BY BEN LEFEBVRE