EDITOR: | November 7th, 2017 | 3 Comments

Rare Earths prices run hard on the back of improved fundamentals

| November 07, 2017 | 3 Comments
image_pdfimage_print

On the 2nd of November Core Consultants released its Rare Earth Monthly report. In September we cautioned that we may start to see a correction in the sector. We acknowledge that while fundamentals have improved, prices have run hard and the correction came last month. As the Chinese State Reserve Bureau (SRB) did not make any purchases in September, leaving traders with excess supplies, this correction was more pronounced, and subsequently we have started to see some desperate sales by traders who have found themselves sitting with a surplus.

In order to contain the price decline, another initiative taken by Chinese suppliers was to scale 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. Northern Rare Earth, which has passed month on month price increases, was forced to lower its prices by an average of 14% m.o.m in October.

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. 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. This means that once this initiative is implemented, 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 Ministry of Industry Information and Trade (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


Lara Smith

Editor:

A Sr. Editor and Analyst for InvestorIntel and Managing Director and Founder of Core Consultants, Lara is an internationally recognized expert in the field of ... <Read more about Lara Smith>


Copyright © 2017 InvestorIntel Corp. All rights reserved. More & Disclaimer »


Comments

  • Tracy Weslosky

    We need more news on Chinese markets. Thanks for the update Lara and the CORE team — your team deserves a lot more respect in the industry for what you do…and know. Kudos.

    November 7, 2017 - 3:33 PM

  • Lara Smith

    Thank you Tracy. Yes there’s a big knowledge gap between China and the rest of the world. But really, unlike a few years ago, China is now developing international projects. This could have been predicted if more Western analysts attended Chinese rare earth conferences ten years ago. When I attended a Chinese conference back in 2009, the main emphasis was on how to control their pollution, the number of deaths and strains of cancer caused by rare earth mining in China and how to protect their local resources from running out through possibly sharing their know-how with projects outside of China. Ten years later and we see these strategies unfolding rapidly.

    November 8, 2017 - 4:21 AM

  • RareEarthMagnet

    Really appreciate your RareEarth analysis. Not many sources for good intelligence and yes Tracy, we need reliable information on the Chinese market.

    November 8, 2017 - 10:11 AM

Leave a Reply

Your email address will not be published. Required fields are marked *