Rare Earths Market Update: H1 2022 in Review

Rare earths market update: Prices, supply and demand

Going into 2022, magnet rare earths prices were expected to hold onto their gains on the back of a prevailing tightness in the overall market.

“Prices have gone much higher in the rare earths space over the last 18 months, to the point where the Chinese ministry came out and basically waved a stick and said, 'Okay, it's time to get these things reined in,'” Jon Hykawy of Stormcrow Capital explained to the Investing News Network (INN).

“And that didn't really happen. Price increases stopped, but the prices have remained high.”

Long term, Hykawy expects demand for magnet materials to continue, driven by the electrification of vehicles.

“The simplest engineering solution for a drive train on an electric vehicle (EV) is to use a permanent magnet synchronous motor, and those permanent magnets are made of REEs,” he noted. "So as that trend continues, I expect the prices to remain high."

Speaking with INN about the REE market in the first six months of the year, Ryan Castilloux of Adamas Intelligence said he expects the current strong pricing environment for magnet rare earths to stay. “Notwithstanding the market’s typical ebbs and flows led by seasonality and other short-lived transient factors,” he added.

Sharing his insight on how the market has performed, Castilloux said the full extent of demand growth continues to be suppressed by auto industry microchip bottlenecks.

“(That translated) to soft demand for general automotive applications like micromotors, sensors and speakers,” Castilloux said. “On the flip side, however, demand growth from the EV sector has continued to perform well, albeit it is also being tempered by cell and component shortages.”

Electric car sales doubled in 2021 to a new record of 6.6 million, as per the International Energy Agency. And while EVs accounted for less than 8 percent of global sales last year, and just under 10 percent in Q1 2022, projections from consultant AlixPartners show they could reach 33 percent globally by 2028 and 54 percent by 2035.

Overall, Adamas Intelligence is expecting global neodymium magnet demand to increase by 10 percent this year. The firm expects the so-called magnet rare earths to collectively see the strongest demand growth in H2, along with gadolinium and holmium.

“The tightening or easing of automotive supply chain bottlenecks can impact demand and/or prices to the upside or downside going forward, as can unexpected and severe pandemic-related lockdowns and/or border closures that suppress demand or hinder the flow of materials,” Castilloux said.

Rare earths market update: Building supply chains outside of China

The COVID-19 pandemic has accelerated the global trend of governments awakening to supply chain vulnerabilities, and critical minerals have been at the center of most discussions and developments.

Castilloux is glad to see more investment in North American and European supply chains, but said, “Billions more — dare I say trillions — will be needed to shore up self-sustaining mine-to-market supply chains in these regions, including the wealth of manufacturing capacity needed to produce batteries, motors, EVs and more."

Rare earths remain a key technology to enable energy transition targets, and the supply chain is considered to be high risk given China's dominance throughout its components.

“However, the investment in rare earth supply outside of China is far from matched with refining capacity, and this in turn requires further downstream industries to become a sustainable independent supply chain,” Nils Backeberg from Project Blue told INN.

“A lot of investment news from the US is related to military applications, which is a relatively niche market and one that could be the catalyst to establish a starting point of a supply chain outside of China,” he added.

Rare earths market update: Projects to watch out for

During H2, Castilloux expects to see development projects continue to advance toward production.

“This year has seen a steady flow of feasibility studies and funding-related announcements to-date,” Castilloux said. “But (we) are not expecting any imminent changes on the supply front for this year, which is concerning in light of the magnet market’s strong demand growth.”

Australia has been at the center of most developments, with Iluka Resources (ASX:ILU,OTC Pink:ILKAF) announcing plans to develop a rare earths refinery in Western Australia with a loan from the Australian government.

“Moreover, earlier this year, Hastings Technology Metals (ASX:HAS,OTC Pink:HSRMF) announced it had secured a government loan for its Yangibana project in Australia, echoing a similar announcement from Arafura Resources (ASX:ARU,OTC Pink:ARAFF) the year prior, which secured government funding to support development of its Nolans project in the nation,” Castilloux added.

Additionally, Search Minerals (TSXV:SMY,OTCQB:SHCMF) recently announced positive preliminary economic assessment results for its Foxtrot and Deep Fox projects in Labrador. For its part, Mkango Resources (TSXV:MKA) shared positive feasibility results for its Songwe Hill project in Malawi.

When asked about which projects he is keeping an eye out for this year, Castilloux said upcoming studies to watch out for include Peak Rare Earths’ (ASX:PEK) updated feasibility study on its Ngualla project in Tanzania, and Ionic Rare Earths’ (ASX:IXR) feasibility study on its Makuutu project in Angola.

On the processing front, the expert suggested keeping an eye on Ucore Rare Metals (TSXV:UCU,OTCQX:UURAF), Medallion Resources (TSXV:MDL,OTCQB:MLLOF), Rare Earth Salts and REEtec, plus all the work being born out of the Saskatchewan Research Council.