2015 was yet another a torrid year for the rare earths
industry, characterised by falling prices, a gloomy market
outlook and scarce funding opportunities for juniors.
One of the biggest stories of the year was Molycorp Inc.
filing for Chapter 11 bankruptcy protection in the US in late
July. Previously one of only two major suppliers of rare earth
products outside of China, Molycorp was forced to mothball its
historic Mountain Pass mine in October. This brought a
production stream offline which, according to Molycorp, in Q1
2015 had produced 1,479 tonnes rare earth oxides and 1,328
tonnes in Q4 2014.
A two-stream bankruptcy process was underway by the end of
the year. Molycorp and its creditors can now elect to either
negotiate a debt haircut on the company and restart operations
at Mountain Pass, possibly with restructuring, or, Molycorp
could be asset stripped, with its various limbs – many
of which are profitable – sold off to customers. Some
essential staff have been kept at Mountain Pass.
While Molycorp’s demise was probably the most
eye-catching story of the year in Western media, the most
important development for the industry in 2015 was the reaction
to the 2014 World Trade Organization (WTO) ruling on rare
earths policy in China. The international trade body demanded
that China remove its export taxes on the elements and some
derived products, which resulted in a policy shift from export
quotas and export taxes to production quotas and resource
taxes. In May, the resource tax rate for light rare earths was
pegged at 11.5% in Inner Mongolia, 9.5% in Sichuan province and
7.5% in Shandong province. Middle-heavy rare earth resource
taxes were set at 27%.
Rongzhang Ma, the secretary of the Association of China Rare
Earth Industry (ACREI), said in August that higher tax rates in
the south of China, primarily justified owing to the higher
value of heavy rare earths, which are more common in the
region, were resulting in an imbalance, with the south often
realising no profit at all following the tax changes.
Illegal mining continues to be an industry stumbling block
too. Ma also said at the time that market data proved that the
practice was still taking place. While estimates vary, up to
40,000 tpa rare earths are still thought to be produced in
China in unapproved operations. Local government is often
understood to be complicit in illegal production, which is a
significant contributor to oversupply and low prices.
Consolidation of the industry into the "big six" rare earths
producers, aimed at combatting illegal mining and improving
environmental standards, looks set to continue into 2016.
A grant of Chinese renminbi (Rmb) 1bn ($155m*) was awarded
to the Baotou region’s rare earths industry in the
summer of 2015, with the aim of increasing the value of
production through higher product purities and superior end
products. A subsidy of Rmb 458m ($71m) was provided to Ganzhou
province for the same purpose.
In April, Chinese rare earths producers reported their first
ever collective industry loss, for 2014. 2015 is expected to be
similarly unprofitable. China is also reported to be setting up
a state-owned bad debt fund to aid floundering miners,
according to a Bloomberg report in December.
Lynas Corp. Ltd had a more positive 2015 than most, despite
continued unprofitability. The company registered two quarters
of positive free cash flow as of September 2015. In addition,
Molycorp’s suspension of production means that
Lynas is now the sole major non-Chinese rare earths supplier,
significantly increasing its standing in terms of supply
security. Buyers seeking non-Chinese material will only be able
to acquire this, directly or indirectly, from Lynas, a
substantial advantage for the company. In addition, its
performance in 2015 enabled the company to reduce interest
payments on its loans.
Finally, 2015 saw many junior explorers drop out of the
market. While there remains a gap for heavy rare earth
producers, magnet rare earth producers and those with a
potentially revolutionary technology, several juniors have gone
bankrupt or reached agreements with creditors. Some have
delisted from their respective stock exchanges, including
Tantalus Rare Earths AG, Great Western Minerals Group Ltd,
Avalon Rare Metals Ltd and Frontier Rare Earths Ltd.
The rare earths market continues to suffer from the demand
destruction caused by 2011’s high prices.
Neodymium and praseodymium demand is, however, expected to
increase in the medium term, driven by positive market
sentiments for the magnet industry. Magnets will be required in
higher volumes if the electric vehicle (EV) market takes
Dysprosium, despite being a rare earth important to the
magnet industry, where it is used to prevent denaturing at high
temperatures, is likely to see demand fall in the medium term.
While previously dysprosium was blended throughout magnets, it
is now just being used as a coating by many manufacturers,
requiring smaller volumes.
For europium, the future does not appear positive, owing to
the replacement of europium phosphor-utilising fluorescent
bulbs. With no other major sources of demand, the element is
forecast to see severely reduced demand.
Despite several rallies during 2015, prices were down on the
previous 12 months. ACREI’s pricing index, which
stood at around 135 at the start of the year, was recorded at
around 120 in mid-December. This was, however, a rise on the
September trough of around 110. The index was as high as 200 in
Oversupply remained strong, prompting the big six to cut
output by around 10%. Positive sentiment regarding magnets led
China Northern Rare Earth Hi-Tech Group Co. Ltd to announce a
rise in its guidance prices for neodymium-praseodymium
(didymium) concentrate material in October by Rmb 10,000/tonne
($1,548/tonne), up 4% on previous price levels. Meanwhile,
IM’s prices for lanthanum and
europium oxide have fallen back.
Significant price rises are not expected in the near future.
Positive developments in Chinese policy, including
consolidation and a crackdown on illegal mining, should start
to produce more positive fundamentals in the long term,
Consolidation and the removal of illegal mining from the
supply chain are likely to improve market fundamentals in the
future if they can be achieved, but for now, the outlook
remains one of the most challenged in industrial minerals
markets, with oversupply, weak demand and depressed prices all
putting pressure on the sector.
Lynas is in a considerably stronger position owing to
Molycorp’s withdrawal from the sector, while in
China, the big six recently cut their output plans.
*Conversions made December 2015