Rare Earth Outlook 2017: Another Slow Year Ahead

It’s been another challenging year for the rare earth sector; nonetheless, analysts weren’t expecting much from the industry at the end of 2015.
Last year, Jon Hykawy of Stormcrow Capital told the Investing News Network (INN) he wished he was “hopeful” about the market outlook for 2016. He then added, “I don’t see much in the rare earths business to be hopeful about.”
And, Hykaway was right; 2016 wasn’t exactly a booming year for the rare earth sector. Its price remained weak and active rare earth companies outside of China grew smaller, according to Industrial Minerals (subscription).
As such, Chris Berry of House Mountain Partners and the Disruptive Discoveries Journal shared his thoughts with INN on the rare earth market in 2016 and gave his rare earth outlook 2017.

Rare earth themes 2016: low prices, Chinese supply and illegal mining

Looking back to 2016, rare earth prices remained fairly stagnant throughout the year, which wasn’t surprising.
Berry said the industry was overall sleepy, and that low prices “generally curtailed investor interest and investment.”
That said, in the Industrial Minerals report, the Chinese guidance for rare earth prices was pretty grim to start the year, notably in heavy minerals produced in southern provinces.
The prices saw a slight recovery in the spring after China’s top six rare earth mining companies accumulated as a result of a government protection conspiracy.
Overall rare earth prices were “fairly subdued.”
Berry echoed a similar sentiment in regards to the mineral’s sluggish price.
“Despite steady growth in select rare earths, prices generally have not responded,” he said. “This has only solidified China’s stranglehold on the space.
In terms of supply and demand, the story has been interesting, particularly out of China.
Of course, it’s well known that China is the world leader in rare earth oxide supply, comprising of more than 90 percent of the global market, as noted by Research and Markets.
With that in mind, the Baiyun iron ore mine, located in Baotou, China, continued being shutdown throughout 2016. The mine has typically accounted for a third of global production of rare earth, so the closure has no doubt impacted the supply.
On that note, illegal mining of rare earth was also significant in terms of supply coming out of China.
Earlier in the year, Reuters reported that the Chinese government would be working to put a stop to illegal mining of rare earths by creating a system to clarify the origin of the materials’ supplies.
The illegal mining allegedly accounted for 44,000-46,000 tons, roughly one third of the year’s global production, PR Newswire noted.
As a result of the illegal mining, the prices of rare earth in China dropped to six-year lows. Reuters said it hit “legitimate producers hard inside and outside China, which churns out 90 percent of the world’s supply.”
As such, in October the Ministry of Industry and Information Technology (MITT) announced it would be limiting its annual mining of rare earth to 140,000 tons by 2020. With the announcement, the government also made it known it would keep investigating and apprehending those still involved in illegal mining of rare earths.
In December, Industrial Minerals reported that the Ministry of Industry and Information Technology had announced a plan to tackle illegal rare earth mining from December 2016 through to April 2017. The plan includes entering any illegal operations into the national credit information database, which will allegedly affect abilities to secure loans and listings, the publication noted.

Rare earth outlook 2017: much of the same

Moving into 2017, Berry said 2017 won’t be particularly different for the rare earth sector.
“I don’t expect much to change,” he said. “Demand for select rare earth elements ought to remain healthy but disconnected from overall price.”
Similarly, Industrial Minerals notes Chinese supply will continue pulling down prices until there’s a firm policy in place to shut down mines, or the emergence of new demand.
Still, the rare earth sector is expected to recover at some point, PR Newswire suggests. The publication says the focus of the rare earth sector in the coming years will “intensify” on neodymium deficit with a rise in prices over the next five years.
“The long-term performance of this sector is threatened by potential substitution of NdFeB technologies  in HEVS/EVs and wind turbines,” it says.
Of course, the Chinese government’s plans to regulate rare earth production to 140,000 tons per year, beginning in 2020 will also impact the industry moving forward.
That said, according to Research and Markets, the global permanent rare earth sector looks to reach $41.41 billion by 2022. In terms of rare earth supply, it’s “expected to remain stable after WTO intervention and international agreements providing opportunities for sustainable market growth.”

Investor takeaway

As far as what investors should keep their eyes on, Berry said investors should pay attention to what’s happening in China.
“Watch industrial policy in China, “he said. “Watch overall pricing data as this may crack open the door for financing for western rare earth elements projects to push forward.”
While it seems as though the rare earth market is expected for another slow year, there is plenty for investors to consider in the coming years.
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Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.