The rare earths market has experienced significant volatility stretching back to 2012 caused by market issues which remain unresolved. The growing importance of rare earths in energy transition applications such as wind energy and electric vehicles continues to place them at the top of critical mineral assessments, although concerns over material providence may present more pressing issues for downstream manufacturers.

Lessons from the Past 

The rare earth industry still carries the weight of concern around risk and volatility which emerged during the 2010-2011 price spike. China has built its position in the rare earth market with the long-term goal of growing its downstream industry and has become the leader in refined rare earth technologies. By the early 2000s, China controlled ore supply to support downstream investment. First, export taxes were used as a means to secure domestic feedstock for Chinese refineries. As China significantly reduced its export quota for rare earths in 2010, the restricted availability to international markets, amplified by speculative purchases, saw prices soar to new extremes, peaking in mid-2011.  

The 2011 price spike saw a swath of new exploration projects spread like wildfire globally, causing every project to review drill cores to check for any signature of rare earth minerals. At present, Project Blue is tracking over 200 mineral assets globally at various stages of development. 

Following the removal of export quotas in 2015, under a ruling from the World Trade Organisation, the Chinese government turned to production quotas to control and limit the availability of rare earths for export. The use of a production quota was also successful in consolidating supply into the now big-4 state-owned enterprises (SOEs) and effectively stamped out illegal mining of rare earths in China – albeit with some of this replaced by rapidly growing ionic clay mining in neighbouring Myanmar.

Magnetic waves across the industry 

Note: The main magnet rare earths include light rare earths neodymium (Nd), praseodymium (Pr); SEG/middle rare earths samarium (Sm), gadolinium (Gd); and heavy rare earths terbium (Tb), dysprosium (Dy), and holmium (Ho). 

Wave 1: In the early 2010s, rare earth magnets – specifically neodymium iron boron (NdFeB) – took over as the industry’s largest application as China ramped up output to support the early growth energy-conversion efficiency applications. With illegal supply out of China still rampant, there was no shortage of low-cost and abundant materials and rare earth prices oscillated largely in unison.  

Wave 2: In 2017, supply had tightened to the point that neodymium (Nd) supply had slipped into deficit. For the first time in recent history, prices of rare earths did not all move in unison, with rare earth elements used in permanent magnet applications displaying trending upwards. This awoke the world outside to the narrative behind NdFeB magnets and projects started to redefine feasibility studies with a focus on NdPr. 

Over 2018-2020, prices softened as China’s refineries remained well-supplied with imports from growing international sources adding supply above production quotas (which can be argued has preserved mining of domestic resources to secure long-term supply).  

Wave 3: In early 2023 we are on the tail end of the third wave of market shifts caused by NdFeB magnets, with Nd reaching highs of over US$180/kg prices in early 2022 (compared to US$225/kg in 2011 – and over US$350/kg for FOB prices). Electric vehicles (EVs) are at the centre of the market-changing event and the rapid uptake across the globe has catapulted EV drivetrain motors to be the largest application for rare earth magnets with a CAGR of over 28% in demand since 2010, tripling in volume since 2018. 

The price increases in 2021 and 2022 were once again caused by a tight supply of magnet rare earths at the start of the year as demand from magnet production capacity in China ramped up to meet EC demand. The market tightness was exacerbated with heavy rare earth feed cut off for over 6 months from Myanmar (which has accounted for over 30% Dy and Tb since 2018). Prices for Nd and Pr then started falling off as China released high quotas for China Northern Rare Earths over the course of the year. Dy and Tb softened more slowly, linked to material from Myanmar returning slowly over the second half of 2022.

Geopolitical involvement with the criticality of EV supply chains  

The EV world is now becoming accustomed to their exposure to NdFeB magnets and the risks that come with the China-dominated supply chain. While USA and Europe are debating how best to build independent rare earth and magnet supply chains (though sometimes forgetting about the metal and magnet portion), China is forging ahead with magnet production capacities growing quarter on quarter. China is also starting to use magnet IP as a tool to slow potential NdFeB projects outside of China, by limiting the information transfer outside of its borders. 

Even in China, the big-4 are increasingly assigning rare earth production costs to the suite of magnet rare earths, with prices for cerium and lanthanum falling well below cost of production reaching <US$1/kg in Q2 2023. As a result, the outlook for neodymium prices is expected to show greater support from the market leaders as costs are increasingly supported by Nd-Pr and other magnet products. 

The firm fundamentals underpinning the growth in demand from EVs has supported renewed interest in financing rare earth projects, led by governments addressing critical material concerns as well as previous rare earth market leaders. Solvay has rekindled its interest in the rare earth industry, looking to restart the production of Nd-Pr and rare earth separation at its La Rochelle plant in France.  

Automotive OEMs are also starting to look more closely at their rare earth supply chains. Tesla brought attention to rare earths through their announcement of rare-earth-free drivetrain motors – though previously Tesla made the switch to rare earth magnets to support competitiveness (read more here). 

Off-take agreements are now central to the advancement of projects looking to come to market, though the recent downward trend in pricing has brought back an air of caution and – once again – all eyes are on China for an indication of the next move.

Heavy rare earths, ESG and ionic clays 

Project Blue expected heavy rare earths (HRE) will have an important role to play in the sustainability of the long-term rare earth industry. Dy and Tb are key components in EV motor magnets, but their relative supply from the main rare earth deposits is out of sync with their use in high-performance NdFeB magnets. 

There are two ways to address this issue. The first is technological developments, whether via a reduced loading of Dy, or OEMs such as Tesla are successful in developing rare-earth-free motors with equivalent efficiency to those using NdFeB. Project Blue’s latest forecasts include scenarios and risks based on known technological developments in the pipeline that can have a material impact on the market. 

The second is the sourcing of rare earths from HRE-rich deposits, such as ionic clay or xenotime resources. Ionic clay deposits are best known in southern China, where they contributed significant volumes over the 2000s and 2010s, however, have been largely closed since 2016, when environmental policies and a crackdown on illegal operations in China led to their suspension. 

This supply has been replaced by Myanmar, where companies including Chinese owned operations, have flooded across the border to extract from geologically similar ionic clay resources. The military-run nature of Myanmar and surface footprint of ionic clay mining leaves behind a negative ESG image that is causing Western OEMs concern over the longevity of this supply chain.  

Supply from Myanmar is also one of the key reasons for Nd oxide prices dropping back below US$70/kg in April. While the ionic clays are an important source of Dy and Tb, they also include a significant Nd and Pr – effectively as a by-product. While exports from Myanmar ramped-up over Q1 2023, the H1 2023 quota for the Chinese big-4 indicated a move by China to keep the domestic demand balanced by domestic supply, leaving imports for additional security. Additionally, Chinese companies are now sourcing rare earth products from ionic clay feedstocks in Laos, with imports ramping up over Q1 2023 as well. 

This has left Dy and Tb in a healthy balance for the time being, while also building a supply surplus for Nd and Pr markets. Project Blue forecast the role of ionic clay mining in Myanmar and now also Laos to have a limited time span, however, because of their accompanying poor ESG credentials. While, the short-term demand outlook will be met by this supply, over the long term Project expects technological developments will need to play a key role to move the magnet rare earths into a sustainable pattern.