The misleading prices of rare earths

The rare earths market is facing a paradox: prices are at rock bottom. Western and Chinese rare earth companies alike are losing money, projects are struggling to access financing, and there’s little incentive for exploration of new deposits. This disconnect between rare earths’ critical role and its current market reality poses significant challenges for the future of energy and technological advancement as the world strives to meet its climate goals.

Current prices represent mainly local Chinese transactions between related companies, but do not reflect the global reality of surging global demand and future scarcity of supply. Right now it is not possible to transact industrial volumes or long-term contracts at such prices.

Financing new projects to compete with the status quo is very hard to attain, given that the financial system requires a market price to feed the financial models that support the investment case and spot prices are currently not enough to generate positive returns. The alternative is to use a price from an off-take contract agreed with an EV manufacturer or other clients. But these contracts are currently not occurring – given that EV producers are highly focused on cost reductions, and paying a premium on the Chinese equivalent product appears to them more like a loss of competitiveness, rather than a strategic opportunity to secure a diverse and environmentally sustainable supply of the critical materials they require.

However, premiums for rare earths versus the current published prices should be rather negligible to EV producers. The current average cost of producing an EV is close to US$40 000, while the value of the rare earths in their motors is less than US$100. These numbers demonstrate that, even considering premiums, rare earths are not likely to determine the cost competitiveness of an EV, and that prices which typically attract financial support to rare earths mines are not far from the EV producers’ financial capabilities.

This price misalignment will not last. Rare earths permanent magnets bring efficiencies that may allow the EV manufacturer to save on battery costs, a much bigger driver of their cost equation. Furthermore, an EV without permanent magnets will not be able to compete in performance with one that has them, and consumers will only increase their questions around the sustainability of the materials used to build the product they are buying. The ultimate goal of acquiring an EV is contributing to improving the environment, not incentivising uncontrolled mining activities somewhere else on the planet.

In this rapidly changing landscape rare earths prices are likely to increase substantially very soon. Sustainable production of rare earths will be limited, highly appreciated and in great demand. The attributes they provide significantly outplay their cost, making them the obvious preferred technology to power the energy transition. First movers will be winners; companies with a clear strategic vision and robust sustainability practices will surely anticipate the imminent market imbalance, move quickly to capture the limited supply of clean rare earths, and lead the charge into the future.

Read the article online at: https://www.globalminingreview.com/mining/05122024/the-misleading-prices-of-rare-earths/