Rare earths have a key role to play in decarbonization, and demand for this group of critical metals is expected to be strong in the coming decades as governments worldwide take steps to meet energy transition targets.
Used in the high-strength magnets found in much of the latest technology, from smartphones and wind turbines to electric vehicles (EVs) and defense systems, rare earth elements (REEs) are not rare; however, finding secure sources of supply is becoming increasingly important to countries around the world due to China’s dominance of the sector.
How did rare earths perform in 2023?
Rising supply and depressed demand translated into declining prices for REEs in 2023.
Entrenched inflation and weakening global economic sentiment impacted consumer confidence across geographic markets, lowering demand for new electronics such as mobile devices, appliances and cordless power tools. Demand from two of the biggest downstream applications for rare earths, EVs and wind turbines, also suffered.
These trends placed pressure on prices for magnet rare earths — neodymium (Nd), dysprosium (Dy), terbium (Tb) and praseodymium (Pr) — as downstream users hesitated to make restocking purchases.
By mid-July, the daily Rare Earth Price Index from the Association of China Rare Earths Industry had hit a record low, while General Administration of Customs trade statistics for the first six months of year showed that the total value of the country’s rare earths exports had declined by 17.1 percent year-on-year, according to MIRU News & Report.
MIRU reported that the rare earths market began to rebound in late August through mid-September, coinciding with a temporary production halt in Myanmar, which accounted for 38 percent of China’s rare earth materials imports in the first seven months of 2023. This pushed rare earths prices to their highest level in 20 months, as per OilPrice.com.
China soon after set a new rare earths production quota for 2023 that raised its total allowable output by 14 percent over the previous year’s number. As the dominant global supplier of rare earths, the nation’s production quotas have historically been a major driver of rare earths prices. According to Benchmark Mineral Intelligence, the increase could further “entrench low rare earth ore and oxide prices” at a time when “supply is the biggest downward pressure on rare earths prices at the moment although weak downstream demand is also contributing.’
In early November, the Chinese Ministry of Commerce announced the tightening of rare earths export controls. The move was largely “a response to stricter limits on U.S. semiconductor exports to China,” reported Nikkei Asia.
By late November and early December, MIRU said prices for rare earths were once again testing new lows.
As of December 13, Strategic Metals Invest was reporting that prices for three of the four main magnet rare earths were down significantly year-to-date: Nd was down 44.77 percent, Pr was down 41.99 percent and Tb was down 44.48 percent. Dy fared comparatively better in 2023, down only 10.74 percent year-to-date, as the heavy REE is undersupplied in the market compared to demand.
What is the rare earths supply and demand forecast for 2024?
Looking ahead to 2024, what supply and demand factors are set to have the biggest impact on rare earths?
Project Blue isn’t expecting any big surprises out of China’s rare earths quotas for 2024.
“Chinese supply is better placed to account for its domestic requirements of light rare earths, with the industry paying close attention to the H1 quota announcements, which have signaled strong growth over the last year,” said the market intelligence firm’s team of analysts. “But with relatively weak financial performance, we expect the quota to remain largely flat this year, but still a level capable of meeting domestic 2024 demand.”
Jon Hykawy, president and director of Stormcrow Capital, expressed hesitation at making a call on supply. However, he did say that Chinese mines such as Bayan Obo could easily supply global EV market demand for Nd and Pr — “if Chinese suppliers were acceptable to western buyers.’ In terms of heavy rare earths like Dy and Tb, which give magnets heat resistance, Hykawy said sources outside of China would be useful.
“Also useful would be cheaper and better ways of processing, separating and metalizing rare earths. Whether investors will get excited about that in an environment where rare earth prices are low, it’s hard to say,” he added.
The quest for ex-China supply has resulted in an increased number of new rare earths mining and processing initiatives in recent years. Japan made big moves early in 2023 to wean itself off China-derived rare earths products, particularly Dy and Tb. The Japan Organization for Metals and Energy Security and Sojitz (TSE:2768), through Japan Australia Rare Earths, inked an agreement to invest AU$200 million in the production and supply of heavy rare earths from Australia-based Lynas Rare Earths (ASX:LYC,OTC Pink:LYSCF). This investment, explains MIRU, will allow Lynas to expand its light rare earths production and begin for the first time the production of heavy rare earths Dy and Tb.
Looking over to the US, in 2022, the Department of Defense awarded a US$35 million grant to MP Materials (NYSE:MP) for a new rare earths processing facility. The company has put that funding to use by commissioning an NdPr separation plant in 2023; it is now working to expand its downstream manufacturing operations to include alloys and magnets.
“A key supply chain to follow will be to see where separated rare earths are sent from MP Materials and how much feedstock (unseparated) is exported to China,” said the Project Blue team. Investors should keep an eye out for further “potential advances in rare earth separation capacity, which in turn will fundamentally need the support from metal, alloying and magnet production capacity to diversify magnet supply chains for OEMs.”
CRU Group’s Thomas also sees magnet metals such as light rare earths Nd, Pr and samarium as the best positioned to perform well in 2024 and going forward, especially as EV sales increase globally.
Compared to supply, Stormcrow’s Hykawy finds the demand picture easier to paint. Globally, EV sales remain strong, despite the challenges of reliable charging infrastructure and range anxiety on the part of buyers.
“But small-battery plug-in hybrids or range-extended EVs can offer the best of both worlds, and they need electric motors,” he noted. “Rare earth-based magnets offer the simplest approach to powerful and compact electric motors, so continued sales of EVs should bring growing demand for these materials.”
What factors will move the rare earths market in 2024?
While there don’t seem to be any market-shaking catalysts on the horizon for rare earths in 2024, there are few key factors that could have an impact on the industry in the new year and beyond.
For his part, Hykawy thinks 2024 will be short on rare earths catalysts, but he pointed to a number of trends in the space to follow, such as the few companies outside of China developing cost-effective processing technologies.
“There is also the continuing development of alternatives to rare earths to consider, new technology that can provide strong magnets without using rare earths. Again, probably not happening in 2024, but something to keep an eye on,” he said. “Rare earths remain very important to the automotive industry, but it’s not easy to point to a single factor that will rejuvenate investor interest in this space.”
Speaking about rare earths alternatives, Thomas said CRU Group doesn’t expect to see “any more momentum on non-REE magnets in EVs,’ mainly because of lower rare earths prices and higher availability. “There are known tradeoffs in performance to move away from REE-based magnets, and a large market move to non-REE magnets would come only with sustained high prices or limits to REE magnet availability,” he said.
On the ‘carrot’ side, the US is incentivizing the development of its REE value chain via the Inflation Reduction Act, which provides R&D funding and project financing, while Australia has long supported domestic mining projects through funding and tax incentives. Meanwhile, policies such as Europe’s Critical Raw Materials Act represent the ‘stick’ approach by setting quotas for the supply of domestic versus imported critical raw materials.
“In the end, this boils down to cost in where materials are sourced. Policies which impact relative cost of production/sourcing will be the ones that move the needle on Chinese reliance shares,” said Thomas.
Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.