Trade wars threaten supplies as investors eye rare earths in 2019
With the global agenda on green energy and the electrification of transport systems, the demand outlook for rare earths, in particular the magnet metals neodymium (Nd), praseodymium (Pr), and dysprosium (Dy) is quite positive. This could take a year or two before it translates into a surge in demand for the magnet metals from the anticipated 2020 electric vehicle (EV) sales, but this is not the only use of what is also referred to as technology metals in an industry ripe with demand from storage batteries to laser materials to nuclear storage rods.
Supply should remain tight globally and over 90% of the market is controlled by China, some would argue 95% for the processed materials as bringing on new supply just doesn’t happen overnight and requires a huge capital expenditure. Supply reforms, industry consolidation, and higher environmental standards will constrain China’s ability to rapidly increase rare earths (including NdPr) production. In fact, increased NdPr consumption combined with constrained supply could result in China moving from being the world’s major source of NdPr to a net importer by the early 2020’s.
China could soon be a net importer of NdPr
The REE market will need to find innovative ways to build supply as more automotive makers switch from traditional gas petrol vehicles to EVs that require neodymium (Nd) and sometimes praseodymium (Pr) for ultra powerful magnets used in electric motors. Overall NdFeB magnet growth is forecast at 9% CAGR., with about 4,000 tonnes per year of NdPr required to meet growing demand.
NdPr oxide demand versus supply projection to 2025
Get our daily investorintel update
The US has excluded rare earths from tariffs and added some of them to the critical elements list
2019 could be more positive for the resources sector as a whole with the rare earth sector being one of the few areas that is really well positioned to surge positively, owing to a strong demand outlook with a constrained supply. The US has also excluded rare earths from its final list of tariffs against $200 billion of exports from China, a decision that has highlighted the country’s reliance on Chinese supply of the rare earths used in smartphones and of course electric car motors, not to mention military and other applications. This decision understands China’s dominant position in supplying rare earths.
Some rare earths companies to consider…
Alkane Resources Ltd. (ASX: ALK | OTCQX: ANLKY) is an Australian multi-commodity mining and exploration company. Their Dubbo Project in Australia hopes to become a strategic and significant world producer of zirconium, certain rare earths, hafnium and niobium. The Company represents a significant, long-term, reliable and independent supply option for these essential materials, for a growing range of future industries and sustainable technologies – including clean energy, aerospace, electric vehicles, automation, artificial intelligence and modern healthcare.
Arafura Resources Limited (ASX: ARU) is an Australian emerging producer of neodymium-praseodymium (Nd-Pr). These rare earths are the key raw material inputs into ultra-strong permanent magnets which find application in the automotive and clean energy sectors, and in many personal electronic consumer products.
Critical Elements Corp. (TSXV: CRE | OTCQX: CRECF) is a Canadian mining exploration and development company owning several mining properties in Quebec. The Company’s Arques Project offers strong lithium, rare earth elements potential, as well as niobium (Nb) and tantalum (Ta).
Search Minerals Inc. (TSXV: SMY) is focused on finding and developing critical rare earth elements in Labrador Canada. Their primary focus is the Port Hope Simpson Critical Rare Earth Element District. Their flagship project is the Foxtrot project located within this district. Mineralized zones typically show high concentrations of dysprosium (Dy), neodymium (Nd), praseodymium (Pr), terbium (Tb), and yttrium (Y).
Lynas Corporation Limited (ASX: LYC) engages in the exploration, development, mining, extraction, and processing of rare earth minerals primarily in Australia and Malaysia. It also produces and supplies neodymium-praseodymium material. Lynas is an integrated source of rare earths from mine to customer. The company holds interest in the Mount Weld project in Western Australia. It also owns, develops, and operates Lynas advanced materials plant located in Kuantan, Malaysia; and Mount Weld concentration plant located in Western Australia.
2019 looks like being a big year for everything electric. More batteries are going to be needed for the increased demand for 5G enabled smartphones, electric and autonomous vehicles, and the mass battery storage sector. Similarly more rare earths will be needed for many devices that people use every day such as computer memory, DVDs, rechargeable batteries, cell phones, catalytic converters, magnets, and fluorescent lighting.
With trade wars and other issues potentially threatening supply, investors will do well to keep a close eye on the rare earths sector in 2019.
Matthew Bohlsen holds a Graduate Diploma in Applied Finance and Investment (similar to CFA), and a Graduate Diploma in Financial Planning. He has 30 years ... <Read more about Matthew Bohlsen>