More Rare Earth Rumblings

It’s time to look at the market for rare earths again.

Rare earths are chemical elements found in the Earth’s crust. These elements, which are critical, are used in cars, consumer electronics, computers, communications, clean energy and defense systems.

So why worry about them? China produces and controls 80% of the world’s rare earths. Other nations depend on China for these materials.

Then, for some time, the United States and China have been embroiled in a trade war. So far, though, the U.S. has not included rare earth elements on its tariff list.

Still, there are other worrisome events. Among them are:
*Last year, China became the world’s largest importer of rare earths. This means a large percentage of supply is tied up in China, possibly leaving other nations on the outside looking in.
*In March, China announced new production quotas for rare earths and tungsten. Some believe China could reduce production in the arena.
*Wesfarmers, an Australian diversified firm, recently made an unsolicited bid to acquire Lynas, one of the world’s largest suppliers of rare earths outside of China.

All of these events impact the worldwide electronics supply chain. There are 17 elements that are considered to be rare earth elements. Fifteen of those elements are in the lanthanide series and two additional elements share similar chemical properties. They include scandium, yttrium, lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium and lutetium.

The big driver for rare earths is magnets, which are used in disk drives, electric motors in cars, wind turbines and other products. Magnets represent one-fifth of the world’s consumption of rare earths. Other end products include alloys and petroleum.

For rare earths, the industry is dependent on China. Australia’s Lynas is also a major producer. Other nations produce a fraction of these elements.

In March, Wesfarmers made a bid to acquire Lynas. Will this change the playing field in the market?

“The Westfarmers’ event has highlighted both Lynas’ unique position outside of China, but also the fragility of it,” said David Merriman, an analyst at Roskill Information Services, a research firm. “As resource nationalism and security of supply become more important to governments and companies, maintaining an alternative to Chinese separated REE (rare earths element) supply from Lynas, or other REE operations in production in India and Russia, are becoming critical. Lynas has been very defensive regarding the bid, highlighting Westfarmers lack of experience and knowledge in operating a rare earths mine, processing and separation facility. I would second that metallurgical and processing knowledge is key to successfully operating and potentially expanding a rare earth facility, as companies with significant financing capabilities have tried and failed to commercialize rare earth operations in the past.”

The situation is also fragile on the supply and demand side of the equation. “The state of the rare earths market really depends on which rare earth elements you are talking about,” Merriman said. “It must be remembered that the rare earths are a suite of elements, which although occurring together in nature, are used in a variety of different end-use markets which are very independent.”

For cerium and lanthanum, which are used in catalysts for the petroleum industry or auto-catalysts, there is an excess of supply despite demand being the largest for these elements in terms of volume, according to the firm.

“This is because the natural abundance of rare earths is not equal, with nearly all major rare earth projects being dominated by the light rare earth elements (lanthanum, cerium, neodymium, praseodymium and samarium),” he said. “Prices for cerium and lanthanum oxides are therefore relatively low compared to other rare earths, as a result of their abundance and the oversupply created.”

There are other dynamics as well. “For those rare earths used in the magnet industry, however, principally neodymium, praseodymium and dysprosium, there has been increasing demand with the advent of electric vehicles and renewable energy generation. The supply of neodymium in particular, a critical component of NdFeB magnet alloys used in electric motors and generators, is forecast to remain in tight supply, along with dysprosium which is used to improve the thermal stability or coercivity of these magnets. Whilst neodymium prices have fallen back slightly, because of increasing supply from China and Malaysia, the supply of dysprosium is more restricted and prices have been better supported,” Merriman said.

Another key area is production quotas. In March, China announced rare earths and tungsten mine production quotas for the first half of 2019. “The quotas have meant very little to OEMs directly, as historically production and separation in China has always fallen below quota levels and has not restricted demand downstream in China or the international market,” he said. “The issues which are much more pressing for OEMs are integration of the China rare earths industry, which is now reaching the point where Chinese manufacturers are competing head-to-head with the rest-of-world OEMs in electric motors, energy generation and catalysts. These Chinese OEMs are often integrated or state-owned (fully or partially), accessing and securing materials much earlier in the supply chain. As western focused OEMs are often reluctant to become involved further upstream, they may be vulnerable to raw materials supply being redirected to competitors before even reaching their stage in the supply chain.”

Stay tuned. Keeping tabs of rare earths is critical, especially in the topsy-turvy world these days.