In the past several years, a veritable gold rush has kicked off around the world to shore up supply chains of 'rare earth elements' central to the manufacturing processes of clean energy and other tech components from electric vehicle batteries and solar panels to smartphones. While the 17 elements on the periodic table known as 'rare earths' are the subject of much dealmaking and anxious market speculation, 'rare' is a bit of a misnomer. Most of these elements are actually quite abundant in nature, although the extraction and processing infrastructure around their use has, in some cases, lagged behind demand as new clean energy manufacturing sectors come roaring onto the market.
China, in particular, has been busily snapping up rare earth reserves and contracts in emerging markets for years now and now has a solid chokehold on global supply chains. Beijing alone is responsible for 70% of the world's rare earth ore extraction and 90% of rare earth ore processing, according to a June 2023 report by the Oxford Institute of Energy Studies. On top of that, China remains the only large-scale producer of heavy rare earth ores on the planet, not because China itself is home to rich deposits of them, but rather thanks to "decades of state investment, export controls, cheap labour and low environmental standards," Oxford asserts in the report on China's rare earths dominance and policy responses.
China may have gotten ahead of itself, however, as rare earth element prices have taken a significant and prolonged dip in 2024 thanks to lower demands and what is turning into a significant issue of oversupply. "Exports of rare earths from China, the dominant producer, climbed 7.5% year-on-year in the first seven months of 2024," The Japan Times reported this week, "but prices still fell during that period and are hovering near their lowest in more than three years." This year, prices for dysprosium oxide and terbium oxide have dropped by 32% and 26%, respectively, while neodymium oxide and praseodymium oxide prices have both fallen around 15%.
Prices for rare earths rose briefly in July based on speculation that China would make some significant purchases to stockpile these critical elements, but such a bulk purchase never occurred and prices quickly retreated back to a three-year low. As a result, rare earth producers are now sitting on their own stockpiles of supply in hopes that prices will recover in the short or medium term, according to analysis from Rystad Energy.
The issue of oversupply of Chinese products and materials is a larger trend that has caused no shortage of market disruptions and hand-wringing in the West. "With a weakening economy, China naturally looks for exports," Brad Setser, a scholar at the Council on Foreign Relations, told the Wall Street Journal late last year. "But any meaningful expansion of Chinese exports beyond current levels will crush production elsewhere." China is already under investigation for unfair trade practices related to market flooding and predatory pricing in a number of countries whose markets have been inundated with discounted Chinese exports.
Indeed, continued Chinese exports during market downturns seems to be a large part of the current price deflation for rare earth elements. During the first seven months of this year, while rare earth prices were in steady decline, exports from China nevertheless climbed by 7.5% year-on-year.
Market analysts do believe that rare earth demand - and therefore rare earth prices - will eventually recover, but it won't be an immediate correction. There is no short-term catalyst that will solve the oversupply issue, but demand is likely to pick up slowly and steadily in accordance with long-term demand growth in key energy transition sectors such as electric vehicles, thin-film solar cells and wind turbines.
By Haley Zaremba for Oilprice.com
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Haley Zaremba is a writer and journalist based in Mexico City. She has extensive experience writing and editing environmental features, travel pieces, local news in the… More