China's rare earth boom to pause for lunar new year

(ATF) Prices of mainstream rare earths in China have been on a rapid rise this year. Wind data shows that as of January 13, the A-share rare earth index has risen nearly 12% in 2021.

Thanks partly to a complete supply chain system and strong epidemic prevention and control capabilities, China’s domestic manufacturing industry ushered in a sharp rebound in the second half of 2020. Rare earth industry prices are also going up, although the price of rare earth magnetic materials temporarily adjusted in early December. China’s Non-ferrous Metal Association says the trend of subsequent price increases should continue through 2021.

At the beginning of 2020, metal manufacturers were not very optimistic about their prospects for the year. Some companies stopped or reduced production and implemented relocation plans, causing a slight shortage of raw materials since May. But downstream demand for magnetic materials increased significantly in the second half of the year. The home appliance industry saw large growth and demand for new energy vehicles and wind power turbines has dramatically increased. Containment at both ends led to frantically rising raw material prices in the short term.

According to industry insiders quoted by China Securities Journal, the spot supply of rare earths is tight, and the pace of supplier deliveries has slowed down, creating a “seller’s market”. Rare earth prices are expected to start a long-term rising trend in 2021, and the profits of leading companies in the upper reaches of the rare earth industry chain are expected to be high.

‘Seller’s market’

According to data from Shanghai Nonferrous Metals Network, on January 13, among the mainstream heavy rare earths, the average price of dysprosium oxide was reported at 2,030 yuan/kg, an increase of 4.6% this year, while the average price of terbium oxide was 8,050 yuan/kg, an increase of 11% this year. Among the mainstream varieties of light rare earths, the average price of neodymium praseodymium oxide on January 13 was reported at 432,000 yuan/ton, an increase of 6% this year.

“Affected by the epidemic, the company’s output will not be adjusted in the short term, and it is currently a seller’s market. At the same time, downstream demand for new energy vehicles is strong, and the demand for dysprosium and terbium is increasing, but the domestic annual mining and smelting indicators have a fixed quota,” Hu Yan, a precious metals analyst, told China Securities Journal.

According to data released by the China Association of Automobile Manufacturers on January 13, some 248,000 new energy vehicles were sold in December 2020, which is an increase of 49.5% year-on-year. In 2020, some 1.367 million new energy vehicles were sold, which is an increase of 10.9% year-on-year.

Mainstream rare earth suppliers raised their listing prices at the same time. The listing price of praseodymium and neodymium oxide announced by Northern Rare Earth on January 8 this year was 441,000 yuan/ton, which is an increase of 13,000 yuan/ton from the listing price on December 9, 2020. And Southern Rare Earth said on January 11, the listing price of terbium oxide was 7.2-7.3 million yuan/ton, while the price of dysprosium oxide was 2.03-2.05 million yuan/ton. On December 28, 2020, the listing price of terbium oxide was 6.4-6.5 million yuan/ton, and that for dysprosium oxide was 1.96-1.98 million yuan/ton.

Industry chain companies benefit

As market demand is strong, rare earth industry supply chain enterprises have benefited.

For example, Jinli Permanent Magnet is expected to achieve a net profit of 235 million to 251 million yuan in 2020, an increase of 50%-60% year-on-year. The company stated that during the reporting period, its operating income in the field of new energy vehicles and auto parts increased by nearly 50% year-on-year, and the operating income in the field of energy-saving inverter air conditioners rose by more than 100% year-on-year. It began mass production in the 3C field, and operating income in other sectors such as wind power generation, robotics and ‘intelligent’ manufacturing, plus energy-saving elevators remained stable. The company expects that its operating income in 2020 will increase by 40%-50% compared with 2019, reaching 2.376-2.545 billion yuan.

Mining investment value

Industry sources pointed out that the current market supply situation has not changed much, and the company’s output has not increased much. Taking into account the impact of factors such as the approach of the Spring Festival, rare earth production will decline in February, and it is expected that supply will become more tight, and thus supporting a further increase in rare earth prices.

CITIC Securities pointed out that demand for the largest proportion of downstream output value of the rare earth industry chain is NdFeB (neodymium magnet material). As downstream demand for automobiles, wind power, and energy-saving inverter air conditioners continues to pick up, the consumption of neodymium iron boron is expected to grow further, which will continue to drive the consumption of upstream raw materials such as praseodymium oxide, dysprosium oxide, and terbium oxide.

The trend of strict control of the upstream supply of rare earths is unchanged, and the demand for replenishment of the industrial chain will continue in the near future. Rare earth prices are expected to continue to rise in the first quarter, CITIC said. It is estimated that the peak of praseodymium and neodymium oxide in 2021 may exceed 600,000 yuan/ton, while the high for terbium oxide may exceed 10 million yuan/ton. Given the improvement in the strategic value of mineral resources, CITIC recommended users to continue to paying attention to the strategic allocation value of the rare earth sector.