Rare earth prices drop as China's grip loosens

A downturn in the demand for electronics products and an increasing shift of production outside China has caused rare earth metal prices to plummet.

For a long time, China has been producing the overwhelming majority of rare earth elements (REEs), used in a variety of applications from consumer electronics devices to eco-friendly technologies.

Now, however, it appears that the Chinese hold over production is loosening and this is in part causing prices to drop as production escalates elsewhere.

China’s near monopoly as a producer led to various situations last year where it was accused of withholding materials – vital to production of many goods including military hardware – through export limits.  As well as riling its Japanese neighbours, EU bureaucrats were up in arms over its supposedly eco-friendly cuts.

It has been the expectation that, with China intent on curtailing the amount of REEs leaving its borders, there would be a reduction in the price of rare earth materials which have been driven skyhigh.

According to an analyst for Beroe Consulting India, Rahul Jalan, prices of rare earths are expected to “to drop to 2009 levels” thanks to an increase in export quotas by China and the availability of new sources that are ready to spring up.

Countries such as Japan have been looking to more reliable sources over the past months, with a lucrative hunt for new reserves even leading to an underwater treasure hunt in the Pacific Ocean offering masses of REEs.

While China accounts for a large proportion of REE production, around 90 percent last year, it does not account for a similar amount of the actual metals.  In the US, for example, production is ramping for Texas Rare Earth Resources Corp, with increase in heavy REE production at its Round Top Mountain mine in Texas.  There are even said to be small amounts in the UK though no real evaluation has begun according to authorities. This expansion and diversification of sources is expected to continue to increase over the coming months and years.

Although price drops are not likely to impact on the price of LCD screens or hybrid cars, it seems that the diversification of supply will be welcomed in various quarters.  While environmental safety might not have been the only reason behind China’s previous export cuts, industry consolidation and less polluting illegal mines may have less impact with China not the only viable source of REEs.

Countries rivalling for rare earths will benefit from a reliable supply, says Paul Lusty, Senior Economic Geologist at the British Geological Survey.

“Diversification of supply of rare earth elements and other so called ‘critical metals’ is vital to ensure security of supply in the future for countries with industrial sectors – particularly emerging low carbon technologies and mobile electronics – dependent on these metals,” he told TechEye.

This in turn will lead to a more reliable market which is less subject to rocketing prices that have been seen in the past, at the mercy of Chinese political whims.

Lusty continued: “Diversification of supply is likely to result in improved market stability as it will increase the total amount of REE material available to the market (potentially leading to oversupply for some elements), thereby reducing the risk of short-term supply shortages which have characterised the market during the last couple and years and exacerbated price volatility.

“Diversification of supply is also likely to lead to a more transparent and stable pricing mechanism/regime for REEs.

“In order to improve market stability it is also important that the balance between production and demand of specific REE is addressed (i.e. shortages of heavy REE are predicted in the short to medium term, with some light REE moving to a position of oversupply).”

However, due to the small amounts of the crucial materials used in electronics, the reduction in costs will not be passed on to consumers: “In terms of the implications of REE prices for the cost of electronic products, REE are incremental inputs to technologies – for example a $5,000 plasma screen may only require $1.5 europium which is critical to performance – therefore it is unlikely that a fall in prices will have a significant impact on the pricing of products.”