Rare earths Prices slid more than 30% from record highs in July and the fall has accelerated in the last week, with some elements down 10% since Chinese holidays end on October 10.
China’s largest rare earths producer, Baotou, signalled its disquiet by announcing on Tuesday that it was suspending rare earths production for one month in an effort to prop up prices.
Beijing’s reforms of the rare earths industry in China, which accounts for 97 per cent of global supply, has thrown into turmoil the global market for these metals and minerals, essential raw materials for many everyday goods. The big question facing the industry is whether demand for rare earths, which has evaporated in the face of sky-high prices, will recover – and how soon.
China tries to reignite demand for rare earths
By Leslie Hook in Beijing
There’s a popular get-rich-quick story in the town of Ganzhou, the rare earths capital of southern China: buy rare earths, and hold.
Though the strategy has lined pockets in Ganzhou for years, it is now being tested by a precipitous drop in prices for rare earths, 17 elements used in electronics and lighting.
Prices have slid more than 30 per cent from record highs in July and the fall has accelerated in the last week, with some elements down 10 per cent since Chinese holidays end on October 10.
China’s largest rare earths producer, Baotou, signalled its disquiet by announcing on Tuesday that it was suspending rare earths production for one month in an effort to prop up prices.
Beijing’s reforms of the rare earths industry in China, which accounts for 97 per cent of global supply, has thrown into turmoil the global market for these metals and minerals, essential raw materials for many everyday goods. The big question facing the industry is whether demand for rare earths, which has evaporated in the face of sky-high prices, will recover – and how soon.
Already analysts have cut sharply forecasts for rare earths demand, particularly outside China. Dudley Kingsnorth, of rare earths consultancy IMCOA, recently cut by one third his estimate for this year’s non-China demand for rare earths, to 40,000 tonnes from 58,000 tonnes forecast a few months ago. The impact is likely to be long-lasting: In 2015 non-China demand will be about 50,000 tonnes, he believes, down from his earlier estimate of 74,000 tonnes.
With this weaker outlook, traders are questioning whether Chinese producers will allow prices to fall back to levels that will encourage demand for rare earths to pick up again.
“A significant amount of demand will not materialise if prices stay high,” says one industry executive. “However, this doesn’t necessarily mean prices will fall.”
Baotou’s production halt is a reminder that Chinese producers could co-ordinate to influence rare earth prices.
Chinese mining companies and officials have consistently denied there are any plans to co-ordinate rare earths prices. However, traders say Chinese customs officials enforce “minimum” price requirements before allowing shipments to be exported, a practice that sometimes requires rewriting contracts to conform to the new prices.
Citing environmental concerns, Chinese authorities have this year closed rare earths mines, tightened environmental regulations on rare earths processers, and strengthened export controls.
These measures caused rare earths output to fall and prompted domestic traders to build up large, speculative stockpiles. As a result, rare earths prices were driven up eight- to tenfold during the first six months of this year.
China’s control over rare earths production raised alarm in September 2010, when Beijing halted shipments of rare earths to Japan following a diplomatic dispute.
Not only did global capitals like Washington and Tokyo protest, but industrial users of rare earths, from carmakers to white goods manufacturers, started urgently looking for ways to reduce their reliance on the metals.
Those changes seem to be biting harder than expected. “There hasn’t been any real sustained demand [for rare earths] through the summer,” says one industry executive, adding that it is normal to see a slowdown in the summer. “But what is [more] surprising is that demand coming back into this market this fall has not happened as you would have expected.”
In magnets, which account for about one-fifth of rare earth demand, low-end manufacturing processes that once used rare earth magnets can no longer afford to do so. Chinese rare earth magnet makers have seen orders plummet this year. Some have closed their rare earth magnet operations.
At Ningbo Max Magnet, a maker of neodymium iron boron magnets, sales staff reported that the company had stopped buying neodymium at the beginning of the year and recently shut down their rare earth magnet division. Other Chinese makers of cheap rare earth magnets – which are used for things like electric bicycles or lighting – say that they have seen orders fall by more than 50 per cent.
Rare earths miners Lynas and Molycorp, who are developing mines outside of China that will loosen China’s grip on the sector, have seen their stock prices dip in the last month, as global economic concerns have battered resources shares and as concerns grow over rare earths demand.
Rare earths are irreplaceable in some applications, like fluorescent lighting or military radar systems. But in other cases they are being factored out of new products – like cars, which can use cheaper iron magnets in their electronics systems.
Chinese stockpiling will provide a floor for rare earths prices, as Baotou steadily builds up its 55,000 tonne stockpile – equivalent to roughly half China’s annual production when complete. However Chinese traders who have leftover export quota will be seeking to use up their quota before year-end, which could push prices lower.
“There is no question that rare earth prices rose too fast to an unsustainably high level and the supply chain is digesting the new reality and the resulting indigestion is unavoidable,” says Constantine Karayannopoulos, chief executive of New Materials, a rare earths producer. He remains sanguine about demand in the long term, though, pointing out that designing rare earths out of existing products comes at a cost to performance, weight and efficiency.
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