"The U.S. and Europe would love to cut their dependence on China for rare earths. Standing in the way are low prices and Beijing's willingness to throw its weight around to keep the market down.
Rare-earth prices plummeted this year and are hovering at roughly three-year lows. The spot price of neodymium-praseodymium, a silver-gray alloy and the most profitable chunk of the market, fell almost 20% since the start of January to about $50,000 a metric ton, according to data provider Argus Media. Other rare earths are down more.
Today, the minerals are mainly used in permanent magnets for a range of household items such as TVs, refrigerators and headphones. Increasingly, the magnets help turn motors in electric vehicles, wind turbines and robots. By 2030, such high-tech products are expected to account for roughly two-thirds of demand for neodymium permanent magnets, according to Adamas Intelligence, a consulting firm focused on strategic metals and minerals.
Yet despite the promise of soaring demand driven by the energy transition, prices of rare earths spiraled downward since the start of 2022. A glut of Chinese supply is one problem. In recent years, Beijing boosted production of rare earths using mining quotas, leaving the industry to digest the excess. In its first quota of 2024, China ordered its state-owned miners to produce 135,000 metric tons of rare earths, up nearly 13% from the comparable quota in 2023, according to Fastmarkets, another data provider.
At the same time, demand for rare earths hasn't lived up to expectations. The market for permanent magnets hinges on the strength of the Chinese economy, which faces a deepening property slump. June data showed China's manufacturing sector contracting for a second consecutive month. EV sales slowed amid wavering consumer sentiment.
China's overproduction, with its increasingly negative impact on industry profits, only makes sense as part of a broader economic strategy. The country produces roughly 60% of the world's mined rare-earth minerals. In recent years, it tightened its grip on the magnet supply chain: It controls 91% of refining activity, 87% of oxide separation and 94% of magnet production, according to the Centre for European Policy Studies. That gives it considerable sway over what happens to rare-earth prices.
One theory is China deliberately pushed prices lower to help buttress its green-energy industries. The country is willing to be a loss leader in parts of the value chain to help downstream ambitions such as exporting EVs into international markets, says Ryan Castilloux, managing director of Adamas Intelligence. Lithium, a key input in EV batteries, is another market that China stands accused of keeping depressed with uneconomic mining operations.
A more cynical argument is Chinese overproduction is designed to stymie efforts to develop alternative sources of supply. Low prices of rare earths squeezed margins for Western producers. The shares of MP Materials and Lynas Rare Earths, the two biggest rare-earth miners outside of China, are down by about 38% and 13%, respectively, over the past year.
There is a historical precedent for this kind of strategy in the geopolitically sensitive energy business. In 2014, the Organization of the Petroleum Exporting Countries allowed oil prices to nosedive from more than $100 a barrel in 2014 to less than $30 a barrel two years later, in an apparent attempt to force U.S. shale drillers out of business.
Beijing seems eager to maintain its grip on rare earths. In late June, the Chinese government unveiled new regulations that tightened its control of domestic production. That followed an export ban on rare-earth processing technologies last year.
China hasn't been shy about using its dominance of supply chains to apply political pressure. Moves in 2023 to restrict exports of gallium and germanium, which go into electronics and fiber optics, and some graphite products, used in EV batteries, are the latest examples.
This situation has long worried Western politicians. The U.S., European Union, U.K., Canada and Australia drafted "critical mineral" strategies.
The Biden administration created new subsidies for mining and processing as part of the 2022 Inflation Reduction Act, and in May expanded Trump-era tariffs on permanent magnets, with a 25% tariff set to take effect in 2026.
To stand a chance of loosening China's grip on rare earths, the West will need to deploy the country's own tactics: unprofitable production and long-term thinking. Otherwise, the risk that Beijing could turn off the taps for geopolitical leverage will continue to loom." [1]
Biden's subsidies are just pork for prefered Western companies.
1. Rare-Earth Slump Boosts China --- Overproduction keeps prices low, challenging Western efforts to cut reliance on Chinese supplies. Morina, Enes. Wall Street Journal, Eastern edition; New York, N.Y.. 16 July 2024: B.12.
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