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Rock bottom prices: Rare earths forecast for decade-long growth cycle

Rare earths form a crucial part of many of the devices considered essential in modern society and are seeing heightened demand in the green energy transition. These mineral resources are critical in a wide array of applications, from electric vehicles and wind turbines, to next generation MRI machines and innovative military technologies.
Rare earths form a crucial part of many of the devices considered essential in modern society and are seeing heightened demand in the green energy transition. These mineral resources are critical in a wide array of applications, from electric vehicles and wind turbines, to next generation MRI machines and innovative military technologies. Energy transition minerals are fast becoming a canary in the coal mine for fossil fuels, as their forecasted rises in price and quantity are predicted to drain significant demand away from coal. An energy system powered by clean energy technologies significantly differs from one fuelled by traditional hydrocarbon resources. Since 2010, the average amount of minerals needed for a new unit of power generation capacity has increased by 50%, which is primarily attributed to the growing share of renewables in new power investment. There are serious concerns around the underfunding of new rare earths projects and how this will impact commodity prices and the energy transition as a whole.

Chart: Revenue from production of coal and selected energy transition minerals in the Sustainable Development Scenario, 2020-2040. Source: IEA.

 

Made in China

Some of the most critical minerals in the world function in obscure markets, without regulated exchanges and liquidity that is dependent on private deals. China was the largest importer, owing to their processing dominance. China controls 63% of the worlds rare earths mining, 85% of the processing and 92% of the magnet production. At the end of 2021, the country merged their major rare earths operations from a variety of different entities into one big conglomerate called the China Rare Earth Group Co. that accounted for over 62% of the national heavy rare earth supplies. With its increasing pricing power, production efficiency and global competitiveness, China’s mining and processing quotas continue to form the backbone of rare earth pricing around the world. They have hiked the quota for 5 years in a row to keep up with rising demand.  This trend continued in 2023 with the first quota of the year increasing by 20% for mining as well as smelting and separation. China’s supply monopoly has prompted a global outreach for new producers to enter the market. There are a few high-quality projects that are development-ready in Australia and are heading towards production, but the questions around how much of the mined material will be processed domestically still remain. The US used to have a dominant position in the rare earths market, which was borne out of their arms race with the Soviet Union throughout the latter half of the 20th century. Their position drastically dissipated towards the end of the 90’s, as the rise of China took the global economy by storm.

Rock bottom prices

Neodymium and praseodymium (NdPr) prices were down 35% from January to May 2023, which has been largely attributed to a higher than expected output from China, built up inventory from 2022 and a weak global economic outlook. However, global total rare earth oxide (TREO) demand is expected to grow at 6% CAGR all the way through to 2035, driven primarily by the permanent magnet sector. This is forecast to be 5 times the amount that China can supply. NdPr in particular is critical to the creation of some of the strongest permanent magnets in the world, which are found in things such as electric vehicles, wind turbines and aircrafts. The commodities are an indispensable strategic resource for countries all over the world to transform traditional industries and develop high-tech and cutting-edge national defense technology.  VHM Limited (ASX: VHM) has one of the largest high-grade battery mineral and rare earth projects and plans to become one of the largest critical minerals producers. VHM presented an overview of their company and upcoming catalysts on Reach Markets’ The Insider: Meet the CEO today. To listen to the recording, click here.
Reach Markets has been engaged by VHM Limited to assist with their investor communications and may receive fees for its services. Any communication from Reach has been prepared with all reasonable care and may be based on unverified information obtained from sources believed to be reliable. However, except to the extent required by law, Reach including its representatives, employees, agents or contractors are not liable to you for any loss or damage resulting directly or indirectly from access to information and do not accept any responsibility for errors and omissions, nor make any warranty or representation as to the reliability, suitability, confidentiality, accuracy, completeness or timeliness of information as it may change without notice and so Reach has no obligation to keep the information current. Forward Looking Statements relate to intentions, future acts and events that are only predictions and are subject to risks, uncertainties and assumptions, which are outside the control of Reach. These may include commodity prices, currency fluctuations, economic and financial market conditions in various countries and regions, environmental risks and legislative, fiscal or regulatory developments, political risks, project delay or advancement, approvals and cost estimates. Actual values, results or events may be materially different to those expressed or implied and given these uncertainties, readers are cautioned not to place reliance on Forward Looking Statements. Information and views from third parties may be produced solely for convenience and are not endorsed nor reflective of Reach’s position.

 

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