Challenging Times For The Rare Earth Metals Market

The global rare earth (RE) mining sector and China’s domestic producers are, for the time being, strangely aligned at the moment.

Following a bubble in 2011, prices have plunged, with many ending up at half the level they were at the peak and some as much as 90 percent down.

The two established projects outside of China, Molycorp of the US and Lynas of Australia, are forging ahead, but they are not facing the buoyant market prices of just 12 to 18 months ago, and as a result their share prices have slumped along with those of the metal oxides they produce.

New entrants into the field are likely to fare even worse.

The sector is traditionally served by junior miners looking to develop resources to the point where they become a viable proposition. According to an FT article, there could be several hundred such projects out there, but fewer than a handful will make it to commercial viability.

Meanwhile, the Chinese have stopped production at their largest producer Inner Mongolia Baotou Steel Rare-Earth, which is reported in a Resource Investing News article to have stopped production for the third month running in an effort to shore up prices.

In addition, Beijing has announced its first-half 2013 quota available for export. Usually there are two quotas a year with last year set at 21,226 metric tons for the first-lot quota, and 9,770 tons for the second lot, bringing the full-year quota to 30,996 metric tons.

This year the country’s Ministry of Commerce announced that 15,499 tons of rare earth metals and minerals will be allowed for export; that includes 13,561 tons of light rare earths and 1,938 tons of heavies.

What This Means For Rare Earth Prices
To what extent this will support prices, though, remains to be seen — demand is weak, inventory levels are sufficient and producers are innovating like mad to find alternative formulas that do not require the use of such volatile raw materials.

A period of stable prices would mitigate some of this effort, as current price levels are viable with new supply sources coming on-stream and consumers seeking to diversify away from Chinese supplies. South Korea, for example, has substituted Japanese sources for Chinese in 2012.

For the January to November period, REE imports from China accounted for just 54.4 percent of total imports, down from 78.4 percent in 2011.

The market needs a period of stability to calm consumers’ fears and allow the supply market to stabilize and diversify. To that extent, China’s current reduction in export quotas and idling of production capacity could aid both consumer and supplier alike.

By Stuart Burns