Is the rare earth price slump finally over?

I can take your cathode order now. Stock image.

China produces nearly 90% of the world’s rare earths and its downstream industry consumes some 70% of the 17 elements used in a variety of hi-tech industries including renewable energy, medical devices and defence.

Following a World Trade Organization ruling, China abolished its decade-old export quota system for rare earths, opting instead to focus on controlling domestic supply.

Following the liberalization  of the export regime, official shipments have jumped this year but attempts to rein in the country’s illegal miners and smugglers have been largely unsuccessful. The black market for REEs are put as high as 40,000 tonnes out of total global supply of under 200,000 tonnes.

Beijing’s latest plan to overhaul the industry, not just to shore up prices which have been in decline since 2011, but also tackle the environmental impact of rare earth mining, is centred on consolidation and integration.

The very fragmented industry is being brought together under six large organizations led by the re-named China North Rare Earth Group. The Inner Mongolia-based company operates the Bayan Obo iron ore mine and before the 2010 price surge after Beijing reduced export quotes, produced more than half the world’s REEs as a by-product.

Apart from combining mine output China North Rare Earth and the five groups are being vertically integrated to help modernize the country’s mostly low-tech rare earth separation and refining businesses.

Chen Zhanheng of China’s Rare Earth Industry Association is quoted by InvestorIntel as saying the consolidation process, due to be completed by year end, is helping to stabilize prices just as demand is expected to soar:

“Demand for rare earth ores within China will grow steadily in the next few years. The domestic consumption of rare earths is expected to increase nearly 8.3% this year to 97,700 tons, and is estimated to reach nearly 150,000 tons in 2020, rising 50% from about 90,000 tons in 2014,” according to Chen.

The price index (a rolling 20-day average of REE prices across the industry) compiled by the association showed the first tentative signs of a bottom at the end of September and as Chen points out, after years of declines there may be little downside left.

Is the rare earth price slump finally over?

September 24 Index at 110.6. Source: Association of China Rare Earth Industry