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On Monday, Core Consultants’ published its April Rare Earth Monthly Report. Rare earths has been somewhat muted the past few months and global investors have looked to cobalt and lithium as better investments.

However, we would advise not to take your eye off the ball just yet. There is some interesting behind the scene developments. For instance, this year we expect to see Rainbow Minerals bring on their Burundi project by the end of this year. Management has indicated that initially they will produce 3,500 tonnes of concentrate but there is room to scale this.

Looking to the US, last month we revealed that Russian Oligarch, Vladimir Iorich made a bid for Molycorp.  Republican Member, Duncan Hunter responded by suggesting that the US implement legislation mandating that the US Department of Defence (DoD) purchase rare earths from US sources. Further information has been revealed that if this legislation is passed an allocation of 1% of the US DoD’s administrative overhead may be used to incentivise resumption of the domestic US rare earth production.

In China, the implementation of mining quotas has been well documented. In March, the country’s Ministry of Land and Resources revealed the first batch for 2017, which was left unchanged from a year ago at 52,500 tonnes. Of this, 83% has been allocated to the production of light rare earths. We are unsure at this stage whether the full quota will be left at 2016’s levels as the Ministry has suggested that it will depend on market conditions.

With respect to market conditions, there are some positive signs. Prices of rare earths have either remained relatively stable over the last month or in some instances even trended higher. Our reading of the markets indicates that suppliers are in no hurry to liquidate their positions, nor are they willing to offer too steep a discount. As such, the State Reserve Bureau, in charge of national stockpiling failed to purchase their full quota. The target was to purchase 3,000 tonnes of various rare earths, but uncompetitive bids resulted in only 1,080 tonnes being purchased. As such a third round has been announced which is expected to occur in the first week of April.

Turning to the end-user markets, China’s electric vehicle industry has growth substantially thanks to supportive government policies and ambitious targets. However last month we reported a 69.1% drop in January’s EV sales. We further revealed that China plans to reduce the purchase subsidy by 20% and eventually phase this out over the next five years.

The EV targets are set by the National Development and Reform Commission (NDRC). The NDRC has now been criticised for these hard targets as it has been suggested that a more flexible system should have rather been employed. The main issue is it seems these targets are too tough and is hurting manufacturers’ incentives. The suggestion is that these targets will be pushed back by one year, but to date, no decision has been taken.

 

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Lara Smith
Lara is the CEO and founder of Core Consultants. She has been an analyst for over thirteen years and has focused on commodity markets for just over a decade. She began her career as a buy-side analyst at Foord Asset Management in Cape Town, before taking a Head of Research role at a mining corporate finance and investment firm.

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