Rare earth metals have taken the spotlight for two years now, which makes sense since China began reducing its rare earth export quotas around the same time.
The Asian nation produces more than 90 percent of global output. Now, its influence on the rare earth market matters even more since prices continue to rise.
Some “precious” metals jumped three- to five-fold since January alone. That hike followed China’s clampdown on domestic output.
And this has far-reaching implications.
The world uses these metals on a much smaller scale than other commodities, but a wider range of products rely on them – from fluorescent lights to wind turbines to smart phones.
Rare earth market influenced heavily by China
Most of these rare earth elements are very difficult or flat-out impossible to substitute. So if prices don’t start dropping, everything from mobile phones to hybrid cars could get a whole lot more expensive.
- China’s oversized influence on the rare earths market concerns the global community, including Washington.
- The same applies to Tokyo after China temporarily banned such exports to Japan over a diplomatic dispute last year.
- And Beijing tightened regulations on its high-polluting rare earths sector as it cleans up its mines. As a result, production will almost certainly fall further.
In fact, the country already cut its export quota further.
This year’s overseas sales license is 4.5 percent lower on an annualized basis than last year’s. And it’s over 40 percent below the 2009 quota.
Hong Kong records show rare earth metals exports cut in half over the past year, down to just 1,819 tons in March. Meanwhile, their value abroad soared to over $121,000 per ton, a 10-fold increase from a year ago.
No wonder smuggling accounted for about a fifth of total rare earth sales not long ago. But Beijing clamped down on that too, squeezing the global rare earth market even further.
Meanwhile, global demand for the metals continues to grow unabated.
Industrial concerns over rare earth shortages and higher prices
Industries today have to somehow manage rare earths shortages and higher prices. But that’s anything but easy considering that:
- Cerium oxide – used in products like fuel cells and ovens – jumped 475 percent in just five months.
- Neodymium oxide -used in permanent magnets and wind turbines – rose three-fold so far this year according to commodities consultancy Antaike.
- Dysprosium oxide – used in lasers – leapt by 338 percent this year to an all-time record high price.
Rare earth prices are moving upwards across the board. So governments and businesses everywhere are scrambling for alternatives.
Take hybrid car-makers, which are accelerating the development of lithium ion batteries. Toyota Motor (NYSE: TM, Stock Forum), for example, is working on an induction motor for electric cars that uses fewer rare earth magnets.
Another big consumer, the chemical industry, is doing something similar. Albemarle (NYSE: ALB, Stock Forum) recently introduced a new line of low rare earth fuel catalysts.
That move makes sense considering the 12-month, 1,500 percent increase of the lanthanum it needs.
But those valiant efforts require time before really paying off. And China’s new environmental code for rare earth mines goes into effect in October.
Beijing is not issuing new licenses, putting further pressure on output. That supply and demand balance does not favor businesses or consumers outside of China.
In other words: Rare earth metal stocks are looking to head higher for a while longer.