Rare Earths: The name can be somewhat misleading. In ancient chemistry, “earth” was used to refer to substances that could not be broken down into simpler parts, and “rare” was used to describe unusual elements. Although we currently know that they are neither geologically unique nor particularly rare, the term has endured due to the complexity of their extraction and processing. They function as a kind of essential vitamin for various applications. For example, scandium increases the resistance of aluminum alloys, yttrium (used in television screens, computers and mobile phones) improves ductility and electrical conductivity, and another fifteen elements such as praseodymium, neodymium, dysprosium, terbium and Samarium have unique magnetic properties, essential in green technologies and various defense innovations. Today, the world is experiencing indigestion of these elements. China, the main supplier with 70% of global supply, has saturated the market, generating an excess of supply that has destabilized prices.
The Asian giant has increased official production quotas – the maximum limit imposed by Beijing for local companies to extract and process these elements in a specific period – constantly in recent years. For the first half of 2024, an extraction of about 135,000 tons of rare earths is expected, 12.5% more than in the same period of 2023. Although the figure does not seem alarming, such an increase implies even lower prices, which which reinforces a well-organized local supply chain ranging from extraction to magnet manufacturing. “China has also been importing a large amount of rare earth materials from Myanmar and Southeast Asia, as well as minerals from the United States, generating additional supply through recycling, which complements that official quota,” says Ellie Saklatvala, an expert. in rare earths at Argus Media, a commodities and metals consultancy.
The price of these elements has fallen drastically since 2022, always fluctuating at the pace of Beijing’s decisions on supply control. “When we talk about rare earth prices, China dominates the market,” says Hazel Kangning Huang, an expert at Benchmark Mineral Intelligence, a provider of information specialized in the supply chain of critical materials. China’s dominance is not recent. It has exercised it since the late seventies, when the Government realized its importance in an increasingly technological world. Since then, it has managed to dominate production and processing thanks to a combination of early moves in the industry, state investment in the supply chain, export controls, low labor costs and decades of lax environmental regulation that allowed mines and illegal refining plants. The first rare earth discovery in the country was made in 1927 in Bayan Obo, Inner Mongolia, and production began in the 1950s.
Bayan Obo was historically the largest rare earth mine on the planet and still hosts a significant portion of the world’s reserves. In the 1960s, other discoveries were made in the provinces of Shandong and Sichuan. In light of these findings, the State Council, China’s main administrative body, created a National Rare Earth Development and Application Group in 1975. From then on, funds for research and development in mining increased, which led China to emerge, in the late 1980s, as the world’s largest producer of these elements. “The Middle East has oil, but China has rare earths,” said Deng Xiaoping, the country’s supreme leader from the late 1970s to the early 1990s, when one of the largest investments was made to boost the refining and processing industry. in the Asian economy. Beijing was already exporting large quantities before the beginning of this century and had classified these metals as strategic.
European dependency
The world, as a spectator, watched as China took control. Europe, for example, drew up its first list of critical materials in 2011. Today, the Old Continent depends almost entirely on China for the supply and processing of rare earths. Beijing’s advantage represents a challenge for Western producers, who lack room to maneuver in the face of price fluctuations imposed from abroad. Mining companies in Europe and the US, experts explain, often demand higher prices to attract investors. This is due to their higher operating costs and high expectations of return on investment. Without high quotes, it is difficult to establish realistic profits in the current market due to persistent uncertainty. “Rare earth projects are more difficult to develop than other minerals: the geology is complex, the costs are very high, and raising funds is a big obstacle due to price volatility and high interest rates,” explains Saklatvala. Furthermore, processing has several stages and usually involves more than one country. Even with a mine, you need to know where the concentrate will be separated into oxides to produce metal and magnets, and have a buyer willing to pay more for a Western magnet. “Europe and the United States are moving forward, but building these chains takes years and requires a long-term vision,” the expert adds.
Rare earths have recorded two major peaks this century. The first occurred between 2010 and 2011, driven by China’s decision to limit exports and curb illegal mining. More recently, prices skyrocketed again between 2021 and 2022 due to bottlenecks caused by Covid and expectations of greater demand for clean energy. In the first week of August this year, prices were 1.5% lower than on the same date last year and 70% lower than in March 2022, when they reached their highest level in years. “For the rest of 2024 we expect prices to remain depressed, given the strong excess supply,” concludes Kangning Huang, of Benchmark Mineral Intelligence.
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