“The availability of good finance, technical development of flowsheets and securing downstream consumers for their products all remain key barriers to entry which must be overcome,” David Merriman of Roskill said.
The REE industry felt the impact of the coronavirus pandemic in Q1, seeing supply side disruptions and delays to transportation of material.
But the second quarter was a different story, with China experiencing a fairly robust recovery, though demand projections have been tapered slightly as a result of weaker economic conditions both in China and globally, according to Roskill.
“Outside of China the impact was more pervasive into Q2, with supply side disruptions and closures at non-Chinese operations, which have now largely restarted,” David Merriman, manager at Roskill, said. “The supply disruptions in H1 caused an uptick in most REE prices, particularly dysprosium (Dy) and terbium (Tb).”
According to Roskill, prices have performed in line with what would be expected during a period of tightening supply for heavy rare earth elements (HREE) during H1 2020, followed by a correction as increasing supply returned to the market.
“Prices for Dy and Tb have performed particularly well, though we are expecting to see prices dip back in Q3 before strengthening again in Q4,” Merriman said. “Prices for neodymium (Nd) and praseodymium (Pr), the key magnet rare earth materials, have largely been subdued in H1 2020, with little supply side disruption in China though notable demand side disruptions caused by plant closures downstream.”
In the second half of 2020, Roskill expects prices to fall back slightly for Dy and Tb, prior to further increases towards the end of the year. Prices for other REEs are expected to remain stable or show a marginal upward trend in H2 2020, as demand growth recovers.
“We expect prices for these elements to recover in H2 2020 as demand recovers and facilities work through any built up inventory,” Merriman added.
When looking at the supply of REE, the expert pointed to Nd and Dy as the two elements which present real supply issues over the coming years, as a result of their use in the high growth automotive industry.
“Supply for Nd has largely been robust in 2020, meeting demand growth, and whilst there was tight supply for Dy during H1 2020, this is expected to be alleviated in H2 2020,” Merriman said.
He added that to achieve sufficient supplies of HREEs, particularly Dy and Tb, there have been increasing volumes of REE ores and concentrates imported from Myanmar or in the form of monazite mineral concentrates from various countries, which are processed in China. Myanmar is the third largest REE producing country.
Outside of China, which by far dominates the space, the challenges remain the same for many REE developers.
“The availability of good finance, technical development of flowsheets and securing downstream consumers for their products all remain key barriers to entry which must be overcome,” Merriman said.
For Merriman, the rise of REE by-product supply (from heavy mineral sands operations or phosphate operations) is likely to fill market space, which new entrants were targeting in the short term.
“This is likely to further fuel Chinese market dominance of refined REE products and maintain a relatively small number of market players at the refined stage in the short term,” he added.
In terms of demand, the REE space is recovering well in H2 2020, though Roskill expects annual year-on-year demand for REEs to fall back in 2020 across all market segments.
“Demand for magnet rare earths (Nd, Pr, Dy, +/-Tb) is expected to experience the strongest growth during the early 2020s,” he said.
Commenting on the challenges to build out supply chains outside of China, Merriman said there is significant potential, though these supply chains must be supported at multiple stages if the aim is to make them China independent.
“This itself presents the main challenge, in that even if separated REEs were produced outside of China, there is a limited market for their use outside of China, particularly for magnet materials,” he said.
For these supply chains to be sustainable, downstream consumers must be willing to commit to non-Chinese producers, potentially even incurring higher prices, to support them longer term and ensure security of non-Chinese supply chains.
“This cooperation throughout the supply chain has been hard to come by, particularly where Chinese sourced material has been comparatively low cost,” Merriman added.
Looking ahead, Merriman said investors should keep an eye out for the geopolitical situation surrounding REEs and other critical materials.
“(This) is creating opportunity, though investors should be warned there are several companies which have been developing REE projects for a significant period which have latched onto this renewed interest without showing any material developments,” he added.
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Securities Disclosure: I, Priscila Barrera, 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.