The Sino-US trade war has persisted for longer than most anticipated, and although the US omitted rare earths from increased duties, China raised the tariff on imported rare earth ores and concentrates from 10 to 25%. This has negatively impacted Mountain Pass, which sends its ore to China for processing, as does almost everyone else.
This tariff has sparked renewed interest in developing processing facilities within the US. Lynas Corp and Blue Line Corp, a chemical company based in Texas, agreed to a JV partnership to ensure that American companies will continue to have access to rare earth products via a US-based source.
Similarly, Mountain Pass has once again evaluated the potential for processing its own material in the US. However, China must tread carefully, for as much as it dominates rare-earth processing, it relies on Japan and the US for up to 80% of its exports; not exactly well-diversified.
China has also banned heavy rare earth imports from Myanmar, and while this could be mitigated to an extent by importing from other regions, prices will remain elevated until such deals occur. Magnet prices have also improved on the back of the conflict, which has given the lighter rare earths neodymium and praseodymium some upward momentum.
Our expectation is that the prevailing political and policy landscape at present will foster higher prices in the short term. Curbs on imports from Myanmar, coupled with tighter environmental stringencies in China and rising tariffs on the import of US rare earth metal ores, make it less economical to process material in China and will likely continue to increase heavy rare earth prices.
Long term, however, China will almost certainly increase imports of heavy rare earths from other countries outside of Myanmar including Thailand, Russia, Australia and India, which currently all supply China. While there could be a shortage of certain heavy rare earths in the short term, this month marks the commencement of a new heavy rare earth mine in Hunan province, which should help allay any longer-term deficit concerns.
Supported by stable prices in China, along with a trade war that has left suppliers preferring to hold back, Chinese exported neodymium metal prices rose to $54-65.5/kg, FOB in the first week of June, up $1.5/kg in less than a week, and up from $52/kg at the end of April. Going forward, we don’t expect another major price increase over June/July.
Looking at the market conditions in April, we noted that the sales volumes for neodymium in China declined 5.5% to 170 tonnes, but production levels fell by almost double that figure. As such, prices were ostensibly due for a correction.
We continue to expect further upside potential for heavy rare earth material, and for this increase to be sustained over the next few months. With respect to light rare earths, we expect some weakness in the lanthanum market owing to the decline in fuel catalyst demand. However, raw materials for magnets (neodymium, praseodymium, mischmetals) should continue to drive prices forward. Consequently, we expect continued upward momentum in both markets.
The export market to a large extent takes its cue from the Chinese market. However, now the China/US trade war, and particularly the increased expense of processing in China, should continue to raise prices. Heavy rare earths in April rose 5% to $238/kg and in May this rose by a further 9% m.o.m to $259/kg. Light rare earths have recovered from April and risen 2% in May to $19,790/tonne. We expect this to increase further in June.
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