The price slump in rare earths, which has lasted several months, appears to be coming to an end. With rising demand for energy transition technologies such as wind turbines and electric cars, the current signals indicate that the market is stabilising and a possible price recovery is imminent.
The raw material group of rare earths is one of the most important building blocks for the energy transition. These strategic metals can be found in permanent magnets, which in turn are used in wind turbines and electric cars - areas of application that are enjoying steadily increasing demand. Against this backdrop, it initially seems surprising that prices have fallen noticeably in recent months. Neodymium, for example, was a magnet material of central importance for the energy and transport transition, according to the monthly DERA price monitor was almost 11 % cheaper in May than in April. Other representatives of this element group, such as dysprosium, also fell in price.
Since the beginning of June, however, there have been increasing signs that the decline that began in January 2023 has come to an end and prices are stabilising. The market appears to have reached its pain threshold and is in the process of bottoming out.
What is behind the surprising price drop?
The historic fall in the price of rare earths since the beginning of 2023 also came as a surprise to many market observers. Normally, high demand would be expected to keep prices up. This would also be supported by the fact that China has even reduced its exports in recent months and thus the overall supply. However, in addition to industrial demand and export quotas, other factors play a role in price formation. Some of these are to be found in China itself: the first quarter is traditionally relatively weak, as this is the time of the Chinese New Year, when mines and processing plants, as well as other parts of industry, shut down. Domestic demand for raw materials such as rare earths naturally declines here.
Special factors such as the many months of a consistent zero-Covid strategy and strict lockdowns in cities with millions of inhabitants have also left their mark on the domestic economy and are weighing on the industry. This also applies to the consumption of the Chinese population, such as sales of e-cars, one of the drivers of demand for rare earths alongside wind turbines. Outside of China, for example in Germany, there has also been a reduction in e-car registrations since the beginning of the year. Consumers are holding back on purchases due to unclear electricity price trends, expiring state subsidies in many countries and the sluggish expansion of the charging infrastructure. Nevertheless, China remains the world's largest sales market for e-mobility, and the proportion of electric cars in the fleet is growing faster than in Europe or the USA. Unsurprisingly, the People's Republic therefore expects its own demand for these raw materials to rise in the medium term, which also explains the recent increase in the state's mining quota for rare earths.
Consolidation in the market is emerging
It is undisputed that China, with its quasi-monopoly on rare earths, can exert a significant influence on pricing. However, the rules of the game could change with each additional player in the raw materials market. Countries such as the USA and Australia, which are rich in natural resources, want to expand the extraction of raw materials. In Vietnam, too, there are strong endeavours to increase the extraction of Rare earths and their processing in their own country. The very high raw material prices of recent years have also made investments in (national) recycling processes attractive. The cost increases may also have had a further impact: In view of the price spikes for neodymium and other rare earth elements in recent months, some purchasing departments will have exercised restraint, if their own stockpiling allowed them to do so. Experience shows that when raw material prices fall, buyers are usually quick to replenish their own stocks, which in turn pushes prices upwards.
In addition, the previous price slump in combination with rising energy prices made it almost impossible for many mining companies outside China to extract the raw materials at a cost-covering level. The further processing of rare earths by downstream refiners, which is also energy-intensive, is also likely to have been unprofitable in recent months. It can be assumed that, apart from cash flow, raw material sales have been reduced to a minimum, i.e. material has been sold at a loss in order to cover running costs. This could have provided the impetus for an upward price correction.
The conditions are therefore good for the market and pricing to receive impetus from many different players in the medium term.
About the author
Jan Giese has been working in industrial sales for technology metals and rare earths at TRADIUM in Frankfurt am Main since 2022. Previously, the business administration graduate spent 2.5 years in charge of global purchasing at Heraeus Quarzglas GmbH, a business unit of the globally active family-owned company Heraeus. During his time at Heraeus, Jan Giese was responsible for purchasing rare earths as raw materials and knows the challenges first-hand from an industrial perspective. Since joining TRADIUM, he has deepened his knowledge of the rare earth markets and their players.
