Structural changes in China’s rare earths supply chain bode well for companies outside of that country that are developing new rare earths projects.
A new report published by respected industry observer Adamas Intelligence of Sudbury, Ontario, highlights a 50% increase in the price of certain rare earths since the start of the year, which will especially benefit junior companies such as Mkango Resources, which is working towards the development of the Songwe Hill rare earths deposit, in Malawi.
Spot prices are currently at three-year highs as the availability of spot material in China is diminished on the back of government intervention to curb the illegal production of rare earth materials.
The report outlined that the Chinese government’s inspections of more than 400 companies, “with an explicit focus on 180 companies involved in mining, processing and trading of rare earth products”, has focused on “inventory levels, actual output versus permitted, and entailed a thorough audit of past sales, tax payments and export prices charged to clients abroad”.
Supply tightness in the spot market is being exacerbated by the government inspired concentration of the industry into the hands of only six major players, which have been developing key long-term supply agreements with downstream industry offtakers and, thereby, further restricting material entering the spot market.
Adamas noted that Chinese buyers of overseas produced rare earths “can avoid paying a 17% value-added tax imposed on China-derived supplies”, improving the strategic standing of new, non-Chinese producers of rare earths.
Adamas observed that internal demand for neodymium/praseodymium in China was growing at about 10% a year and it has increased its short-term price forecasts, while maintaining long-term target prices later than 2025. Despite not detailing their price forecasts in the summary, Adamas described the price outlook as “higher prices sooner”.
Mkango, one of a handful of rare earth miners outside China, aims to start production in Malawi in 2020 to catch an expected leap in demand for the metals that are used in electric vehicles and other new technologies. Demand for rare earths, which range from neodymium used in electric motors to lanthanum used to make batteries, is increasing with the emergence of new, greener technology.
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