We cautioned in our October report that whilst the fundamentals of the industry have greatly improved, prices have run hard and we should expect to see some correction in October. This correction was even more pronounced as the Chinese State Reserve Bureau (SRB) did not make any purchases in September and subsequently we have started to see some desperate sales by traders who have found themselves sitting with a surplus.
In order to curb price reductions, Chinese suppliers began scaling back production. China’s South Rare Earth Group ceased production in October. What was intended as a pause during the National Holidays and a chance to do scheduled maintenance ended up as a complete outage for the entire month in an effort to boost prices. Northern Rare Earth, which has passed month on month price increases lowered its prices by an average of 14% m.o.m.
Regarding Chinese policies, last year China revealed its Five Year Plan for the rare earth industry, which outlined targets and legislative initiatives. We are seeing clearly that these targets are being realised. One of the initiatives for instance was to introduce a traceability system in an effort to root out illicit producers. This system is expected to be completed by 2020. Already traders European traders have indicated that they are not finding any illegally mined or exported material.
Another initiative was to exert more control over rare earth producers. We have seen the rationalisation of rare earth companies into six conglomerates, but now Jiangxi has introduced ‘whole chain industry controls’, which means that if one has a production license, then one would automatically have the rights to sell the material. However, the converse is also true; which means we will start to see the end of smaller trading outfits and exporters and further consolidation.
Outside of China, China is continuing its commitment to develop and co-operate with foreign entities. Baotou Hongbote Technology Co, Ltd has confirmed its joint venture with Russia’s O’ Tank Group to develop a deposit in Kyrgyzstan.
With respect to end user markets, China is intent on leading the world’s EV market. BYD Chairman revealed his estimate that China could ban all ICE vehicles by 2030. Even if China’s MIIT laws were realised of 20% EV sales by 2025, this would translate to 7m vehicles on the roads.
Another sector showing promise for the rare earth industry is the wind power sector. Capital and opex costs of windfarms have halved over the last two years and a recent auction held in the UK demonstrated that for the first time wind power costs may be lower than nuclear, which should see the proliferation of wind farms over the next ten year.
In terms of prices, whilst October prices showed weakness, we expect that producers will attempt to push prices, especially in the export market ahead of the Christmas/New Year slowdown. The reduced output and destocking during October is expected to assist producers in realising these prices.
We are expecting the next two months to be more stable from a price perspective and forecasting prices to rise again until the end of the year as traders push up prices before the holiday season.
Note: The Core Consultants Rare Earth Report is the first rare earth report to be written by a Western Company. It presents exclusive market information, provides analysis of key trends and get to the essence of what is happening in the rare earth industry since 2010. To subscribe, click here