The World Trade Organization has ruled against China and its export restrictions on rare minerals, according to the FT, saying Beijing had for years used trade policy to control key markets for strategic commodities and encourage manufacturers to move their operations to China.
Of course, China will appeal, so the status quo will remain for the time being, but speculation is already growing that an increase in exports could depress global prices for rare earths further, possibly making some of the start-ups unviable and certainly deterring new mining ventures currently on the drawing board.
A Reuters article quotes Ryan Castilloux, founding director at Adamas Intelligence in Sudbury, Ontario, saying, “If the recent WTO ruling leads to a softening of China’s rare earth industry policy measures, the nation’s only tangible defense becomes competing head-to-head on price with emerging global producers,” ergo prices will fall.
What’s happening to rare earth prices now?
What This Means for Metal Buyers
Rare earth prices are already under pressure from rising supply among new entrants like Molycorp and Lynas, even though neither have reached full production yet. Both producers’ deposits are rich in light rare earths rather than the more valuable heavy rare earths, and it is this end of the range that has seen the most price weakness.
This is in spite of the fact that China’s export quota has not been filled for the last two years, suggesting that while demand has remained stable, supply has increased and speculators have kept out of the market, in marked contrast to 2010-12 when speculative buying and hoarding undoubtedly contributed to the sharp spike in prices.
The victory at the WTO may therefore prove to be hollow, as an increase in supply cannot be absorbed by the market and may yet damage the longer-term prospects of US domestic source Molycorp. Even without this ruling, Michael Gambardella of JPMorgan is quoted as saying, “We continue to believe that all rare earth prices will move meaningfully lower as Molycorp and Lynas ramp to just their full Phase 1 capacities.”
Molycorp aims to boost output to 20,000 tons a year, after producing just 1,000 tons of rare earth oxides in the fourth quarter. The price pressure, though, will be slewed against the lighter grades rather than the heavier (and rarer) grades, as the world is almost totally still reliant on China for those.
Meanwhile, consumers continue to look for alternative ways of achieving the same engineering outcome without the use of rare earths, a raw material they see as volatile and reliant on an unstable supply base. Electric car makers such as BMW’s Mini and Tesla are said to have eschewed the use of rare earths in favor of induction motors that do not use RE magnets – such substitution is unlikely to be reversed until consumers have long-term confidence in their supply chain.