How Policy Changes Could Impact Rare Earth Investments

As demand for rare earths increases, governments and companies are working to diversify the supply chain - though this effort often faces numerous barriers.

At its peak in 2010, China held nearly all REE production. Nations therefore sought ways to limit their dependence on Beijing by investing in the African Continental Free Trade Area to increase value addition and clamping down on illegal mining operations.

China’s Influence

China's dominance in rare earth production, processing and manufacturing has raised alarm in the West that it could use its position to manipulate supply and prices. Beijing has responded with policies designed to promote domestic production as well as exports.

One policy has been to promote rare earth mining and processing by consolidating smaller companies into state-owned enterprises, leading to six large firms such as China Minmetals, Baotou Steel, Xiamen Tungsten, Ganzhou Rare Earths and China National Petroleum Company controlling 90 percent of the rare earth oxide market (Investor Intel, 2015). Conversely, another approach has been strict environmental regulations which can be costly for producers; refining one ton of RE oxide can generate up to 1.4 tons of radioactive waste and sulfur emissions (Hurst 2010).

Both policies may give Beijing an edge, yet make it hard for other companies to compete with Beijing. Raising production requires large capital expenditures -- often 10-20 times greater than raw material costs -- while efforts to increase capacity take years to bear fruit. As long as demand outweighs supply, rare earth prices will likely continue to climb in the short term; investors should carefully weigh this against potential long-term returns from REE investments.

http://www.mining.com/russian-getting-back-into-rare-earth-game/

Tariffs

Rare earths are essential components of high-tech products such as permanent magnets used in wind turbines and hybrid vehicles, nuclear power generation systems, advanced military weapons systems and communications networks - so their price volatility is more extreme than other commodities, making secure supplies vitally important to companies who depend on these materials in manufacturing processes.

China's REE policies enabled it to capture an impressive share of the global REE market. By 2010, they held control of 97% of production globally - including 85 % of REE oxides and metals worldwide.

However, Beijing's export quota system ran into difficulty with major REE importers such as Japan; during a diplomatic dispute China temporarily cut REE exports and caused prices to spike sevenfold.

The United States and other nations have initiated various trade disputes against China, alleging that its policies favor Chinese industries at the expense of those of foreign competitors (Hatch, 2010). China's increasingly stringent environmental standards and elimination of illegal mines will erode its competitive edge when it comes to providing low-cost REE minerals domestic consumers. Chinese companies have begun investing in REE projects outside their own country due to comparatively higher cost concentrate imported from overseas; prominent examples being Shenghe Resources' purchase of Molycorp by a consortium led by Shenghe Resources and Greenland Minerals' Kvanefjeld REE project (Roskill 2017).

http://juanatanner.blogspot.com/2011/03/ibc-signs-agreement-with-us-army.html

Supply Chain Disruption

China dominates rare earth element (REE) production and processing, yet other nations possess considerable reserves; Japan, Australia and the U.S. each possess significant rare earth reserves; yet all three depend heavily on China to fulfill their supply (Figure 6).

China's economic dominance stems less from geology and more from Beijing's willingness to use rare earth industry as a political weapon. After an angry exchange with Tokyo in 2010, Beijing restricted exports for two months and used tiered quotas to discourage cheaper upstream products like raw ores while encouraging the export of more refined oxides, metals and alloys - more refined forms of minerals used industrially - instead.

As a response, some companies are taking steps to diversify their supply chains away from China. MP Materials has undertaken the task of building facilities at its Mountain Pass mine in the US in order to process REEs instead of sending them directly to China for processing - which may reduce dependence and the need for price manipulation by way of export restrictions and policies in China in the long run. As these projects come online it will be important to assess their effects on supply chain reliability as well as potential volatility risks.

Political Uncertainty

China's dominance in the rare earths market has inspired other nations to encourage their citizens to invest in rare earths mining and processing outside China, in an effort to reduce dependency on the country - though political instability could pose risks that impact demand for rare earth minerals globally.

Though some research firms offer rare earths pricing information for a fee, its accessibility may be more limited due to rare earths' absence from an exchange and index.

However, tracking these minerals can be done through various channels. MP Materials is one such entity. They own and operate Mountain Pass Rare Earth Mine in North America which processes its material before selling it off to manufacturers who will then incorporate it into products like hybrid and electric cars.

Return potential is further increased as they don't rely on Chinese prices, and operations are located within the US - an effort by President Biden's Administration to strengthen critical mineral supply chains, develop technologies that enhance national security, reduce carbon emissions and create low-carbon technologies. To this end, an interagency effort has been set forth to develop domestic rare earth production as part of transformational development strategies.