China trims production quotas: Rare earth prices to surge
Rare earth prices, which experienced a sharp decline in 2023, are expected to make a strong comeback later this year, driven by growing demand from the electric vehicle (EV) and wind power industries, coupled with a potential reduction in production quotas by China, the leading producer of rare earths. Analysts predict a resurgence in rare earth prices after a challenging year in 2023.
Rare earths, a group of 17 elements crucial for a wide range of applications, from military equipment and lasers to magnets used in EVs and consumer electronics, saw their prices reach a decade-high in 2022. However, these prices plummeted throughout 2023 due to increased production in China and sluggish demand growth, impacted by the country's uneven post-pandemic economic recovery.
According to data from Shanghai Metals Market (SMM), the price of praseodymium oxide, one of the most commonly used rare earth elements, fell by 34% in China during 2023. Similarly, terbium oxide and neodymium oxide hit their lowest levels since late 2020 by the end of the year.
Despite this downturn, analysts believe that further decreases in rare earth prices are limited, especially for neodymium-praseodymium (NdPr) oxide, which is crucial for permanent magnets. SMM analyst Yang Jiawen pointed out that NdPr oxide prices experienced a 38% drop in 2023 and are currently hovering close to the production cost level.
Guolian Securities recently predicted an 800-metric-ton global deficit for NdPr oxide in 2024, a significant shift from the 6,600-ton surplus recorded in the previous year.
China, the dominant player in the rare earth industry, took notable steps in 2023 to control output. The country issued a third batch of rare earth output quotas, marking the first time it had done so within a single year since 2006. The total quota for the year reached a record high of 255,000 tons, reflecting a 21.4% increase compared to the previous year.
China's pivotal role in rare earth production cannot be overstated, as it accounts for 70% of global rare earth mining and a staggering 90% of refined output, according to data from the United States Geological Survey. The country has employed a quota system since 2006 to manage the supply of this strategic resource.
As the world continues its shift towards renewable energy and electric mobility, the demand for rare earth elements, particularly those used in magnets for EVs and wind turbines, is set to increase. With China potentially reducing production quotas, the global rare earth market appears poised for a resurgence in 2024, providing hope for a much-needed recovery after a challenging year.
Peter Milios is a recent graduate from the University of Technology - majoring in Finance and Accounting. Peter is currently working under equity research analyst Di Brookman for Corporate Connect Research.