Rare Earths Outlook 2015: Another Tough Year Ahead

For our 2016 rare earths outlook, please see: Rare Earth Market Outlook 2016

In 2014, China was still center stage in the rare earths market, and it wasn’t an exciting year in terms of prices. Producers Molycorp (NYSE:MCP) and Lynas (ASX:LYC) made some progress, but their share prices are down at least 80 percent year-to-date, suggesting that it’s still tough out there for rare earths companies outside of China.

Looking ahead, it’s difficult to predict what’s next for the rare earths space given the number of variables at play. However, Ryan Castilloux, founding director and market research analyst at Adamas Intelligence, suggested that while another difficult year could lie ahead, prices for some of the rare earths could rise. He also said companies able to adapt to tough conditions could be worth keeping an eye on.

Prices

Castilloux suggested that looking ahead, an “if-then” Boolean-type approach is most prudent when looking at the rare earths market. For example, rare earths prices will need to do better in order for some companies to succeed next year.

“If rare earth prices don’t improve in 2015, I think we’re in for another quiet year ahead, and we’re likely to see a few more exploration projects and companies fall off the map or begin focusing on other types of mineral resources,” he said.

However, while his firm anticipates that cerium and lanthanum prices will sink lower in 2015, it expects the price of neodymium to rise, “narrowing the gap between neodymium oxide and more expensive praseodymium oxide that was established in 2014.”

Overall, Adamas expects the prices of several important rare earths to begin trending upward in the second half of next year. “With this improvement we expect a renewed interest in the exploration sector from project financiers and institutional investors,” Castilloux said.

Of course, many critical metals investors will still be watching for the effects of this year’s World Trade Organization (WTO) ruling against Chinese rare earth export quotas. Jon Hykawy, president and director of Stormcrow Capital, has suggested that the ruling won’t have much of an effect — except to reduce transparency and security of supply for buyers outside of China. Still, Castilloux noted that if China is able to curb its illegal rare earths mining to some extent, that could be a boon for heavy rare earth oxide (HREO) prices.

“If China’s clampdown on illegal mining and smuggling persists, and is successful in reducing production from the nation’s HREO-rich ion-absorption clays, we expect to see renewed strength behind yttrium, dysprosium and certain other heavy rare earth prices in 2015 as well,” he stated.

That said, the analyst emphasized that the effect of the WTO ruling (if any) is still a major unknown. Meanwhile, he pointed out that the drastic drop in iron ore prices this year could affect the bottom line for Bayan Obo, a major iron producer in China. Given that Bayan Obo is also the country’s largest rare earths mine, Castilloux suggested that the miner might look to boost rare earths prices to make up for its iron woes.

Another tough year ahead

In response to a survey on the market this year and next, Tasman Metals CEO Mark Saxon (TSXV:TSM) said that he isn’t expecting things to pick up for the rare earths space in 2015. He suggested that the market will “remain difficult,” and added that “[w]ith luck we will see the passing of many junior explorers.”

Overall, Saxon advised investors to be cautious entering the rare earths market. In terms of what Tasman will be up to next year, he responded that investors can look forward to the release of a prefeasibility study for the company’s Nora Karr project. It is expected to be released in January.

Similarly, Ucore Rare Metals (TSXV:UCU) said on December 2 that there isn’t much to be done in terms of forcing prices upward. However, the company expects to reach several milestones next year, including the upgrading of the resource at its Bokan-Dotson Ridge project in Alaska and the completion of a feasibility study for the project.

For his part, when asked which companies to keep an eye on in 2015, Castilloux replied, “[k]eep an eye on all of them.” He noted that tough economic conditions for rare earths explorers in 2014 sent plenty of companies “back to the drawing board,” and suggested that the market is beginning to see new strategies, business models and development plans emerging. To be sure, it will be worth keeping an eye out for companies that are able to successfully adapt.

“We’re likely to see a few projects resurface in 2015 with smaller-volume production plans, or staged-growth strategies that reduce risks to investors,” he said.

Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article. 

Related reading:

Rare Earths in 2014: China Still Center Stage