Rare Earths: Is the Price Slide Over?
June 2023 | Market Insights
Source: iStock/Denis Shevchuk
The several months of falling prices for rare earths appear to be coming to an end. With increasing demand for technologies of the energy transition such as wind turbines and electric cars, current signals indicate that the market is stabilizing and a possible price recovery is imminent.
The raw materials known as rare earths play a critical role in the world’s energy transition away from fossil fuels. These strategic metals are used, among other things, in the permanent magnets installed in wind turbines and electric cars, both of which experiencing steadily increasing demand. In this context, it initially appears surprising that prices of rare earths have fallen noticeably in recent months. For example, neodymium, a magnetic material of central importance to the energy and transport revolution, was 11% cheaper in May than in April. This is the finding of the monthly price monitor published by the German Commodity Agency. Other representatives of this element group, such as dysprosium, also dropped in price.
Since the beginning of June, there have been increasing signs that the decline, which began in January 2023 (as reported), has ended and prices are stabilizing. The market seems to have explored its pain threshold and is in the process of forming a bottom.
What is behind the surprising price drop?
The historic fall in the price of rare earths since the beginning of 2023 came as a surprise, even to many market observers. Normally, it would be expected that high demand would keep prices up. This would also be supported by the fact that China had reduced its exports in recent months and thus tightened the overall supply. However, other factors besides industrial demand and export quotas play a role in price-setting. Some of these are to be found in China itself: the first quarter, for example, is traditionally relatively weak, as this is the Chinese New Year, when mines and processing plants and other parts of industry shut down for the holiday. This naturally reduces domestic demand for raw materials such as rare earths.
Special factors – such as the many months of a consistent zero-Covid strategy, and strict lockdowns of megacities – have also left their mark on the domestic economy and are weighing on industry. This also applies to Chinese consumption of products such as EVs, one of the drivers of demand for rare earths along with wind turbines. Outside China – in Germany, for example – there has also been a reduction in e-car registrations since the beginning of the year. Consumers are holding back on purchases due to unclear electricity price developments, expiring government subsidies in many countries, and the sluggish expansion of charging infrastructure. Nevertheless, China remains the world’s largest e-mobility sales market, and the share of electric cars in its fleet is growing faster than in Europe or the US. Unsurprisingly, the People’s Republic is therefore expected to increase its domestic demand for these raw materials in the medium term, which also explains the recent increase in the state mining quota for rare earths.
Consolidation in the market looms
It is undisputed that China, with its quasi-monopoly on rare earths, can exert a significant influence on global pricing. However, as new players enter the commodities market, the rules of the game could change. Countries like the U.S. and Australia, which are rich in mineral resources, want to expand resource extraction. In Vietnam, too, there are strong efforts to promote domestic mining and processing of rare earths. The very high raw material prices of recent years have also made investment in (national) recycling processes attractive. In addition, the cost increases may have had another effect: given the price spikes for neodymium and other rare earth elements in recent months, some purchasing departments would have exercised restraint, if their stockpiling allowed it. Experience has shown that when raw material prices fall, buyers usually replenish their stocks quickly. This, in turn, corrects prices upward.
In addition, the preceding drop in prices combined with rising energy prices made it almost impossible for many mining companies outside China to extract the raw materials at a cost-recovery level. The further processing of rare earths by downstream refiners, which is also energy-intensive, is also likely to have been unprofitable in recent months. It can be assumed that, except for cash flow, raw material sales have been cut back to a minimum, i.e., material has been sold at a loss to cover operating costs. This could have provided an impetus for an upward price correction.
Therefore, the conditions are good for the market and price formation to receive impetus from many players in the medium term.
Jan Giese has been working in industrial sales of technology metals and rare earths at TRADIUM in Frankfurt/Main (Germany) since 2022. Before that, the business administration graduate headed global purchasing at Heraeus Quarzglas GmbH, a business unit of the global family-owned company Heraeus, for 2.5 years. During his time with Heraeus, Jan Giese was in charge of buying rare earths as raw materials; he has learned about the challenges the industry faces through first-hand experience. Since working for TRADIUM, he has been deepening his knowledge of rare earths markets and their players.