By Chris Berry (@cberry1)
For a PDF copy of this note, please click here.
- After a tumultuous few years unleashed by geopolitical rivalries in Asia, the rare earth sector has mean reverted with rare earth element (REE) prices having fallen by as much as 90% from their peak in 2011.
- It is interesting to note that the core issue which drove exponential gains in rare earth prices – supply chain dependence on China – is still a reality.
- In the wake of Molycorp’s (MCPIQ:OTCBB) spectacular implosion and bankruptcy and the financial struggles of Lynas (LYC:ASX), many are questioning whether or not a REE supply chain outside of China is even feasible.
- While the collapse in REE prices has rendered most non-Chinese deposits uneconomic, a weaker local currency coupled with government support may be enough to begin to establish a reliable source of saleable REE products outside of an increasingly unstable China.
- Additionally, reports have emerged that many REE producers inside China are operating at a loss.
- Thanks to these market inefficiencies, this industry is set to consolidate. Expect to see M&A and co-opetition as the industry adjusts to a new normal of lower prices despite healthy demand.
- This white paper looks at the current state of the REE sector and aims to present a vision of what a REE supply chain might look like in this new macroeconomic environment.