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Will the prices of rare earth metals continue to rocket ?

Despite the fact that these rare earth metals have become indispensable to the technological industry, prices have dropped by 25% from those prices reached during last summer

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Rare earth metals are a group of 17 metals (cerium, dysprosium, erbium, europium, gadolinium, holmium, lanthane, lutecium, neodyme, praseodyme, promethium, samarium, scandium, terbium, thulium, ytterbium,yttrium) containing chemical properties which are very sought after in the high tech industries sector, whether it is for batteries, flat screens, catalytic converters or low-energy light bulbs

Despite the fact that these rare earth metals have become indispensable to the technological industry, prices have dropped by 25% from those prices reached during last summer, driven to their lowest by speculators who decided to realise their profits on the stocks that they accumulated over several months, according to the Chinese information site "Shanghai Steelhome Information". It must be said that transactions on these metals are somewhat opaque and do not lead to transparent quotes on the organised markets for precious or base metals, for example.

To make matters worse, communication on the part of countries that produce rare earth elements is somewhat restrained, giving few statistics on the subject. The global reserves of Rare earth oxides are, however, estimated by the USGS ("United States Geological Survey" - " institute of geological studies of the United States") to be 110 million tons at the end of 2010, 50% found in China, including the Community of Independent States, 17% in the ex USSR, 12% in the United States and 2,8% in India.

Contrary to what the name "rare earth" suggests, these elements are spread throughout the earth’s crust. However, the damage on the environment that mining these metals causes, has progressively led most of the producing countries to limit their production. So far, only China seems to be unconcerned about this.

This is the reason why the Middle Kingdom benefits from a quasi monopoly on the Markets, providing the major part of the global production with almost 130 000 tons produced last year. Yet, the country has only half the known reserves, according to the USGS.

One can understand from this, a little better, why China has done everything in its power to ensure that the current decline in prices is as limited as possible To do this Beijing has imposed the closure of certain clandestine mines and have not hesitated in limiting the production of certain active mines, particularly in the regions of inner Mongolia

It is, on the other hand, this desire to control the market of rare earth elements which, since 2004, has led the Chinese government to impose a policy of export quotas. Pekin set up strict quotas on the pretext of protection of its natural reserves and the environment. In this way, within a few years, China took control of the rare earth industry. Quite clearly, this did not please Western industries and largely contributed to rocketing prices in the last few years.

It is therefore understandable why the World Trade Organisation has recently condemned China for restrictions considered discriminatory to, in particular the European Union and the United States, imposed upon the export of the raw materials. The WTO has described these rules including export duties, export quotas and minimum export prices of certain minerals as inconsistent with international trade rules.

To address the possible risks of shortage, the European Union has also decided to act in finding a supply of rare earths with the view to reducing dependence on China for the elements.

But the solution possibly lies elsewhere. Certain businesses such as General Electric (GE), are trying to reduce, to the minimum, reliance on these metals. for example, GE’s strategy is essentially to make more use of recycled metals while trying to develop substitutes for rare earth. This is not an isolated case. Toyota, which uses neodyme for the engine in its hybrid electric car now indicating that the firm is working on a project for a more efficient engine which does not use rare earths.

In short, if this research is successful and spills over to the manufacturers, the price of rare earths could lead to a reduction in their costs.

This is possibly what speculators are already anticipating, which would probably better explain the recent brutal drop in prices of not only rare earths, but also stock prices of companies, such as the American firm, Molycorp, which produce these types of metals.

RF , November 2011

Article also available in : English EN | français FR

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