China's rare earths surplus eases but keeps hold on price – Lynas, MP Materials

The two biggest rare earth producers outside China slogged through another quarter of weak prices as they wait for excess stocks in China to fade and for the country's economy to rev up demand, executives said during recent earnings calls.

Rare earth magnets are crucial to the energy transition as they are used in wind turbines and electric vehicles. They are also used in air conditioning compressors, water pumps and elevators, and this source of demand has taken a hit due to weakness in China's property sector.

China issued a wave of production quotas at the end of 2023, creating an oversupply and sending global prices spiraling. The country accounts for most of the world's mining and refining of rare earths, leaving global prices to hinge on its supply and demand balance.

"Regardless of the cause, there is no doubt that recent market conditions have crushed Western and allied attempts to broaden private investment in the rare earth supply chain," said James Litinsky, president and CEO of US-based MP Materials Corp., during a May 2 earnings call.

MP Materials' realized rare earth oxide price plunged 54% year over year to $4,294 per metric ton in the March quarter according to the company's earnings release. Australia-based Lynas Rare Earths Ltd.'s average selling price fell a more modest 11% to A$43.80 per kilogram over the same period.

Amanda Lacaze, CEO of Lynas Corp. Source: Perth USAsia Centre.

"There's a general consensus that ... the current price is below cost for many Chinese producers," said Amanda Lacaze, Lynas' managing director and CEO, on an April 24 earnings call. "There's also a general consensus that the Chinese economy is starting to pick up momentum again."

Lynas has therefore opted to hold all its inventory of mixed heavy rare earths and about 500 metric tons of neodymium and praseodymium until it can fetch higher prices.

"We thought it would be best if it sits in our warehouse and appreciates as the price goes up," Lacaze said.

Demand from hybrids, robotics

Litinsky said MP Materials is counting on Chinese automakers' progress in delivering lower-priced EVs to stimulate demand.

"Permanent magnets are in the motors, not the battery," Litinsky said. "Hybrids still utilize a lot of permanent magnet content. So if the transition to full EVs involves increased short-term penetration of hybrids, we believe the rare earth industry is somewhat agnostic."

China's focus on producing small, affordable EVs priced below $15,000 has accelerated adoption in the country, according to the International Energy Agency's latest EV outlook. It predicts that one in three cars on China's roads will be electric by 2030.

Plug-in hybrids qualify for new incentives in China aimed at pushing drivers to replace old internal combustion engine cars with EVs, according to London-based consultancy SP Angel.

Further out, Litinsky sees China's production of "humanoid robotics" and drones made possible by artificial intelligence as driving rare earths demand, using "multiples per unit of magnet content versus that of EVs."

Australia-listed Peak Rare Earths Ltd., which produces rare earths in Tanzania, said in a quarterly report that prices were starting to inch up in April after weakening in the March quarter from a combination of higher production quotas in China and a slowdown in manufacturing activity.