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Rare earths price recovery seen muffled by excess supply

Rare earths price recovery seen muffled by excess supply

Photo by Reuters

9th July 2015

By: Reuters

  

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LONDON – An expected bounce in hard-hit rare earth prices later this year will be vulnerable to a glut of supplies, including from illicit mines and smuggling in dominant producer China.

The outlook will weigh on miners such as Molycorp, the only US supplier of rare earths, which filed for Chapter 11 bankruptcy last month after reporting a loss for the 13th straight quarter in May.

The 17 rare-earth elements used in high-tech sectors such as electronics, defence and renewable energy are still recovering from a boom in 2010/11 that unleashed a glut of supply and a subsequent collapse in prices.

"By the year end, we should see upward momentum," said Amsterdam-based consultant Ryan Castilloux, founding director of Adamas Intelligence, adding some prices may rise 10% to 15%.

"It's not going to bring us entirely out of the doldrums, but it's going to bring us back to a better place than we're at today."

Prices soared five years ago when China clamped down on supply, sending some up thousands of percent as speculators went on a buying spree, before the market crashed back down.

Rare earths were further battered on May 1 when China scrapped export tariffs, which had inflated international prices, after a World Trade Organisation ruling.

Cerium oxide, used as a catalyst to refine petroleum and in carbon-arc lighting for the film industry, has tumbled by 40% since May 1 to $1.925/kg FOB China.

It had already slumped to $3.25 from a peak of $150.55 touched in 2011 at the height of the boom after soaring 21-fold over the previous year.

Some rare earths could get support from the impact of China's revised resource tax, which is now based on value rather than weight, and a crackdown on smuggling networks, which may have shipped as much as 40 000 t last year, according to industry sources.

"The change in the resource tax was very much aimed at the fact that they're trying to limit illegal mining," said Melanie Debono with consultancy Capital Economics in London, who forecasts prices rising in the second half of the year.

"The Chinese government has also changed the structure of the (Chinese) industry so there are just six large groups producing rare earths."

Analysts said prices most likely to see gains were the "heavier" rare earths, especially elements used for permanent magnets, such as neodymium oxide and praseodymium oxide.

The recovery in the market would be capped, however, until it works off an overhang of excess supply.

"You've got a lot of excess stock and a lot of layers as well, some in the hands of traders who bought up during the boom and are still looking to liquidate it," said a rare earths trader in London, who declined to be named.

"There's a long way to go to correct so the markets are normalised again, we're going through that now."

Edited by Creamer Media Reporter

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