Rare Earths: Prices down on Friday despite growing demand and supply pressures

Roskill view: Last week saw the rare earth prices plateau, as the rate of price increases during the year slows down. Chinese internal prices for praseodymium even fell by 1.5% on Friday, while other heavy rare earths also decreased on the day; the largest proportional decreases being europium (3.3%), dysprosium (2.1%) and holmium (2.0%) and erbium (1.5%). Regardless, year-to-date prices are still up significantly, with neodymium and gadolinium leading the pack at a 100% increase, with praseodymium and cerium still up 87% and 73% respectively for the year.

The main demand pressure on rare earths is the growing attention of electric vehicles, requiring mainly neodymium and praseodymium in permanent magnet powertrain motors. Roskill estimates that nearly 50M electric vehicles will be sold annually worldwide by 2030. According to Bloomberg, electric vehicles will account for half of total vehicle sales by 2040.

On the supply side China is working towards reducing illegal rare earth mining supply, which has provided an estimated 20-30% of the annual rare earth supply. Currently rare earths are in significant oversupply, but without the illegal mining supply the rare earth market will quickly move into deficit under the current legal production volumes.

Despite the growing market pressures, a combination of several factors could have caused the slow down in rising prices during the first week of September: The decision of the Chinese government to release stockpiled material may have unsettled investors, as China shows indications of controlling price movements in rare earth markets. A general slow-down in purchases by traders buying rare earths to sell at higher prices has also improved the availability on the spot market for some rare earths. Lastly, the enforcement of environmental policies on some legal operating rare earth facilities in China, which disrupted/suspended production in Q2 to early Q3, has been completed and more typical production levels have returned, consequently improving supply availability. Note: Article updated on the 18th September 2017 to account for adjustments to the reported rare earth prices.

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