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Background and Trends in the REE Market
The term Rare Earth Elements (“REE”) is a collective name for the 15 elements in the Lanthanide Series. Due to similar properties, scandium and yttrium are also often considered REEs making a wider group of 17 elements. REEs are divided into two groups: light rare earth elements (“LREE”) and heavy rare earth elements (“HREE”) based on their atomic weight. A further grouping termed critical rare earths (“CRE”) has been established based on their importance to clean energy and potential supply risk. This has been supplemented to a certain extent by a grouping of rare earths used in the high strength permanent magnet sector which currently has the most favourable supply demand outlook. The groupings of the 17 REEs are generally as follows:
All REEs are metallic in nature and are typically discussed together due to their similar chemical and physical properties. With the exception of scandium, they generally occur within the same ore deposits, although the metal ratio differs considerably between different deposit types. Despite the name, REEs are not particularly rare, they are relatively evenly distributed in the Earth’s crust but do not often form sufficient concentrations for it to be economic to extract them. Europium and Gadolinium are sometimes classified as light rare earths.
MarketsThe end uses of REEs can be grouped into two broad categories:
In summary, the principal markets for REEs are as follows:
Figure 1: World consumption of TREO by end-user category.
Source: Adamas Intelligence
Stages of Production
The stages of production for hard rock deposits in the rare earth sector generally comprise mining, beneficiation, hydrometallurgical processing, separating, refining, alloying, and manufacturing rare earths into end-use items and components:
World mine production of rare earths
According to U.S. Geological Survey (USGS) data, from 1960 to 1965 global annual REO production tripled from 2,300 tonnes to 7,000 tonnes (see Figure 2). In the early 1960s production was global, led by a handful of countries, including South Africa, Australia, the U.S., Brazil and India. A number of other nations also yielded small quantities of rare earth minerals and concentrates as by-products of uranium, thorium, tin, and heavy mineral mining operations.
From 1965 to 1980, however, the U.S. dominated global REO production, producing an average of
13,700 tonnes of REO and REO equivalent per annum over the period. During that 15-year period, China’s REO production was negligible and production from all other nations combined averaged approximately 7,100 tonnes per annum (see Figure 3).
By 1980, however, through improving technology, China’s REO production grew to almost 5,000 tonnes per annum and tripled by 1986 to 15,000 tonnes per annum. From 1987 to 2000, China’s REO output grew steadily, reaching approximately 28,100 tonnes in 1992, 48,000 tonnes in 1995, and 83,500 tonnes in2000 (see Figure 3).
In the wake of China’s explosive production growth, U.S. REO production remained steady, averaging approximately 18,000 tonnes per annum from 1980 to the end of 1997 while production from most other nations collapsed in the early-90s due to increased availability of cheaper Chinese REOs.
Throughout the 1990s, prior to joining the World Trade Organization, China dramatically undercut world prices for REOs, leading to the eventual discontinuance of production from most other nations by the end of the decade, including the U.S., Russia, Malaysia, and India. Despite bearing only 30 to 40 per cent. of the world’s estimated REO reserves, China has since assumed a near-monopoly on global production (see Figure 3).
Figure 2: World mine production of TREO region from 1960 -- 2014 (Source: USGS, U.S Bureau of Mines, Adamas Intelligence estimates)
Figure 3: Relative TREO Production from 1960 -- 2014 (Source: USGS, U.S Bureau of Mines, Adamas Intelligence estimates)
In a recent market research report titled “Rare Earth Market Outlook”, independent research firm Adamas Intelligence (“Adamas”) estimated global mine production by REO and country from 2008 to 2014 based on a bottom-up analysis of production by mine and producer.
Adamas estimates that from 2008 through 2014 global mine production of TREO increased at a compound annual growth rate (CAGR) of 3.3 per cent., from 118,200 tonnes in 2008 to 143,300 tonnes in 2014 (see Figure 4). Over the same period Adamas estimates that global LREO production grew from 107,700 tonnes to 125,100 at a CAGR of 2.5 per cent. (see Figure 4), and global HREO production grew from 10,500 tonnes to 18,200 tonnes at a CAGR of 9.6 per cent. (see Figure 5).
Figure 4: Global LREO Production 2008--2014 (Source: Adams Intelligence’s “Rare Earth Market Outlook” report)
Figure 5: Global HREO Production from 2008--2014 (Source: Adamas Intelligence’s “Rare Earth Market Outlook” report)
Adamas estimates that global HREO production increased very sharply between 2008 and 2012 owing to a surge of illegal mining in China brought on by a rise in global REO prices and an increase in domestic resource taxes that made illegal production in the nation more lucrative than ever. It is believed that illegal production from China’s HREO-rich ion-adsorption clay deposits was particularly rampant given that such ores can often be exploited in-situ, offering a low technical hurdle for China’s unregulated producers.
Adamas estimates that illegal TREO production in China peaked in 2012 and has since declined year-on- year on the back of increased efforts by Chinese officials to crackdown on illegal producers (Figure 6). However, Adamas estimates that illegal REO production in China is still very substantial, serving to undermine global prices for REOs, but forecasts a continued reduction in illegal production, strengthening the pricing power of China’s legitimate producers.
Adamas estimates that U.S. production of TREO averaged approximately 5,000 tonnes per annum from 2008 through 2014 with material initially derived from ore stockpiles and later from new production at Molycorp’s Mountain Pass mine in California. Adamas also estimates that Australian TREO production grew from 2,200 tonnes in 2008 to 7,191 tonnes in 2014 as Lynas Corp. commenced production at its Mt. Weld mine, from which it continues to increase output (see Figure 6). India produced approximately 2,800 tonnes of TREO annually from 2008 to 2014, primarily in the form of REO-containing mineral concentrates produced as by-products of heavy mineral mining operations, and Russia produced an average of 2,400 tonnes of TREO per annum in the form of mineral concentrates from the Murmansk region (see Figure 6).
Adamas estimates that production from all other regions combined, being Malaysia, Brazil, and Vietnam, averaged 690 tonnes per annum from 2008 to 2014 stemming from primary REO mines in Brazil and Vietnam, and by-product production of mineral concentrates in Malaysia (see Figure 6). From 2008 to 2014, China’s total share of global TREO production decreased slightly from 91 to 88 per cent., however, with the discontinuance of TREO production from Molycorp’s Mountain Pass mine in the U.S. in mid-2015, this trend is poised to reverse should new sources of production not emerge in the near-term.
Figure 6: World mine production of TREO by country, 2008 -- 2014 (Source: Adams Intelligence
Figure 7: World mine relative TREO production by country, 2008 -- 2014 (Source: Adams Intelligence)
REEs are not exchange traded but are sold on private markets which can make their prices difficult to monitor. REE prices are generally established independently by producers in China and the materials are spot traded between willing buyers and willing sellers. Rare earth traders and producers regularly quote ‘offer’ prices to metal price reporting agencies which serve as benchmarks for prevailing market prices.
From 2008 to 2011, the average Chinese prices of all REOs increased substantially. This increase was caused largely by China reducing the supply of REOs available for export, causing concern among foreign end-users about possible supply shortages. This concern pushed prices to record high levels in mid-2011. It also resulted in a surge in illegal Chinese REO production that has in part led to a reduction in prices from the 2011 highs.
Overall, 2015 was a negative year for rare earth prices although some sectors of the market began to show signs of a turnaround. The first quarter of 2015 saw prices of several rare earths rally on strong demand in anticipation of the abolishment of China’s rare earth export tariffs and rumored changes to the resource tax levied from domestic miners that many were speculating would drive prices higher. However, the second and third quarters of 2015 saw rare earth prices decline steadily. High levels of stock meant, end-users were largely absent from the market, fueling a build-up of supplies in China that, coupled with a lack of pricing discipline, sent prices falling. However, in the fourth quarter of 2015, neodymium prices began to recover and have trended still higher in 2016 to date. Both Chinese domestic and Chinese FOB prices reached multi-year lows in 2015, challenging the prof itability of China’s major producers. China’s (and the world’s) largest producer of REOs and value-added products, China Northern Rare Earth Group, reported a net operating prof it margin of just 8 per cent. in the f irst half of 2015 -- which would have been much less were it not for a rally in the first quarter of the year. Other producers with more upstream-focused operations have fared no better. China Minmetals Rare Earth reported a net operating profit margin of just 4 per cent. in the first half of 2015 and Xiamen Tungsten reported a net operating profit margin of less than 1 per cent.
Producers in China have cited weak prices, overcapacity issues, and excessive illegal production as the main hindrances to profit, spurring a number of producers to rationalize production or temporarily cease operations in a bid to draw-down inventories and increase prices. In 2015, a number of rare earth mining and processing companies in Jiangsu, Sichuan, Guangdong, Ganzhou, Inner Mongolia, and elsewhere opted to curtail or suspend production in order to reduce inventories and allow the government to crackdown on illegal production.
Outlook for REEs
Most market commentators expect REE demand to increase, possibly considerably, in the medium term. Greater market penetration for many products that need REEs, such as hybrids and electric vehicles, lower REE prices and a recovering world economy are all contributing to higher REE demand. The European Rare Earths Competency Network (“ERCON”) has suggested that magnet applications in particular could see double-digit growth rates in the coming years. ERCON also believes that while further gains in terms of material efficiency are clearly possible, they will require intensified R&D efforts and are unlikely to lead to advancements that could significantly slow demand for REEs in the near term. According to estimates by Curtin University and IMCOA, REE demand is projected to increase by more than 20 per cent. between 2014 and 2017 and could be over 50 per cent. higher by 2020.
Adamas estimates that global TREO demand was approximately 125,000 tonnes in 2015 and will increase for individual REOs by 1 per cent. to 13 per cent. annually through to 2020. Adamas forecasts that in 2020, global TREO demand will conservatively amount to approximately 150,750 tonnes. Global TREO demand growth is forecast to be driven heavily by strong demand growth for neodymium oxide, praseodymium oxide, dysprosium oxide, lanthanum oxide, and others from 2015 through to the end of the decade, with the permanent magnet and fuel cracking catalyst sectors the key drivers. In all three supply-demand scenarios considered from 2015 through 2020, Adamas forecasts that global demand for oxides of neodymium, praseodymium, dysprosium, terbium, lanthanum, and yttrium will significantly exceed global annual production in the year 2020 implying significantly higher prices than those in 2015.
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