Trump, Tesla and an increasing appetite for rare earths
Last month we discussed that China was supporting its downstream industries, including a pigment project in Inner Mongolia. This month, we learn that China is again providing subsidies to separation companies. Minmetals is the latest recipient of such a subsidy, in the form of a tax return bonus to one of its subsidiary companies. Meanwhile, China is continuing its zero-tolerance policies with respect to illegal mining, dispatching more than 40 law enforcement officials in Guangxi over the past month. These efforts are starting to pay dividends as prices have increased; the average unit price of China’s rare earth exports have increased 11.9% y.o.y to $51.9/kg in February.
Outside of China, there have been no major changes to fundamentals that are too noteworthy. Again, the biggest mover of markets is Trump. Last month, the President’s infrastructure spending plan with the goal of shortening the average processing time for permitting was the headline. Now, Trump has begun a tit-for-tat trade spat, enacting significant trade tariffs against the import of steel and technology from China. Rare earths and other raw materials have so far been left unscathed; however, the concern is that China will start to levy a tariff on its rare earth elements. If this were to occur it could spell disaster for automakers who are heavily reliant on China for their rare earth requirements.
Get our daily investorintel update
Last time China limited rare earth exports, it was brought to task by the US, Japan and the EU, and by 2012, China’s policies were rebuked by the WTO. This time, given that the US has started the war, the WTO may have less sway.
Meanwhile the US is wholly focused on limiting its reliance on imports to meet its own critical metal demands. For a while now, the Departments of Defence and Energy have invested in studying the potential to extract rare earths from coal. Ucore has now signed a MoU with Kentucky River Properties to extract rare earth elements from its coal fields. It is estimated that concentrations of rare earths are around 300+ppm.
Aside from Trump’s trade war, there hasn’t been too many changes outside of China to the rare earth situation. There is definitely more appetite for rare earths than there’s been in a while. Rare Earth Salts confirmed to Core Consultants that they have buyers and all they need to do is increase output. It seems many suppliers are in a similar boat. Medallion Resources has indicated that their test work is underway and results are producing a cerium-depleted 41.6% concentrate of the much coveted magnet metals, neodymium and praseodymium.
Looking at the end user market, interestingly we found that for the longest time, Toyota has been trying to reduce rare earths in its electric vehicle motors, or at least limit its requirements for the more expensive, rarest types. Tesla, bucking the trend as always, has adopted the complete opposite strategy, increasing its reliance on neodymium and permanent magnets. The car make plans to shift its Model 3 Long Range car motor to neodymium. Last year, neodymium prices climbed 40% to $70/kg. The demand for this metal is expected to rise around 8.5% per annum.
Note: Extracted from the Core Consultants’ Rare Earth Monthly Report.