Rare earths stockpiling in China leads to upward price pressure

By IM Staff
Published: Saturday, 21 May 2016

Chinese rare earths prices rise in April; MTI Chromite sand mine to close

In terms of sentiment, it does not get much bigger than one of the world’s largest oil companies bidding $1.1bn to buy the world leader in high technology batteries. And that is just what happened with Total SA in May as it filed what it called a friendly tender offer on all of the issued and outstanding shares in battery maker Saft Groupe SA (for €36.50/share), with the French Financial Markets Authority.

The acquisition, in simplistic terms, does not necessarily mean more raw materials will be needed in the near-term to sate an insatiable demand for energy storage, but it points to a market moving up, which is good news for the minerals that supply it – notably lithium, graphite, cobalt, manganese (and in some cases even rare earths and phosphate).

Lithium prices remain elevated and sentiment is still bullish. Spot prices are way above contract levels and the market is excited. Graphite prices meanwhile remain low and stable, rare earths prices are ticking down on weak fundamentals.

While the move towards renewables is a positive one for the markets, the question remains; does this indicate that oil majors are turning away from their bread and butter of fossil fuel exploration? A market which affects minerals such as bentonite, barite (barytes) and silica (frac) sand?

Barytes

A recent revision upwards in the barite price would suggest that the oilfield minerals market is not as depressed as expected, although this is by no means a recovery, according to market participants.

The barite price edged up in early May, but market participants told IM at the time this was in response to more expensive freight costs and a slight uptick in the oil price. However, sentiment remains low.

Frac sand

If the production results from US proppant manufacturers are anything to go by, the frac sand market also appears to be depressed. Carbo Ceramics, a leading producer, said that the average price of its Northern White Sand is down to $0.02/lb, or $45/tonne (approximately) from $67.5/tonne over the same period last year.

Rare Earths

Stockpiling of rare earths by China’s six largest producers has pushed up prices in the country over the past month.

Following the completion of the first stage of a national inventory-filling effort in mid-April, China’s domestic rare earths prices have seen increases almost across the board. 

Praseodymium-neodymium oxide has jumped from Chinese renminbi (Rmb) 310,000/tonne ($47,554/tonne*) to Rmb 315,000 tonne ($48,321/tonne), and dysprosium oxide has risen from Rmb 1.3m/tonne ($199,420/tonne) to 1.32m/tonne ($202,488/tonne), while a number of other groups have seen price increases of up to 20%.

Yttrium oxide was the only rare earth oxide product not to see a month-on-month price rise.

Export markets have yet to register a price improvement however. While the quantity of rare earths exported by China increased 90.1% year-on-year (y-o-y) in April, to 3,696 tonnes, the average price of exported material continued to fall. 

Given that the effects of the stockpiling process, which began on 30 March, weren’t felt until late April, overall Q2 export prices should register an increase, however. 

Industry participants were largely bullish about the prospect of a continued uptick, pointing to the sustained rise in prices following previous stockpiling efforts in recent years.

Others remained more pessimistic, describing the stockpiling effort as a national support policy and insisting that only an improved level of market demand can bring sustained price increases. They argue that the focus should rather be on supply-side reform efforts.

They have pointed out that the effects of the stockpiling process should in theory be felt downstream in the markets for applications that use the materials, such as neodymium-iron-boron magnets, which make use of praseodymium, neodymium, dysprosium and terbium. 

But factors including overcapacity, an ongoing price war and strong competition, mean that many downstream companies are reluctant to participate in stockpiling themselves and so continue to place orders as before.

Metspar to recover

A rebound in Chinese and US steel output in the first four months of 2016 has insulated the metallurgical-grade fluorspar (metspar) market with increased enquiries signalling a recovery in demand.  

Registering 0.5% y-o-y growth in crude steel production in the month of April this year, China’s consumption of lower purity grades of fluorspar has increased, further boosted by an increase in US raw steel output.

Sources told IM that enquiries for metspar have increased on the back of growing consumption in steel production, with the new league of suppliers from Afghanistan, Pakistan and Iran emerging as low-cost suppliers. 

Shipments into China, however, have been mainly concluded from neighbouring producers including Mongolia and Myanmar, accounting for 80% and 20%, respectively, of the total metspar imports into the country in Q1 2016.

Nevertheless, the upturn in steel production in China has been matched by a downturn in international markets, especially within Europe, which registered muted growth last year, with the European Union (EU) bearing the brunt of overcapacity in some of the low-cost producing regions.

As a result, domestic consumption has served to stabilise rather than enhance the Chinese market and is likely to prevent a further drop in prices.

Used primarily as a flux for smelting and refining of steel, the metspar market is driven by industrial end-markets.

With few signs of an upturn in these markets internationally, domestic consumption is likely to continue to prop up demand entering H2 2016.

However, IM learnt from its sources that an increase in volumes of low-cost metspar is being traded from several small scale suppliers in areas such as Afghanistan, Iran and Pakistan. This is likely to put downwards pressure on prices as high-cost producers in other regions struggle to compete.

Although shipments from these markets are currently irregular, the prices offered for material with CaF2 content varying between 80%-85%, are $50-$70 cheaper than other major suppliers. 

Lithium

Views on the equilibrium of the lithium market in the coming years are diverging, leading to differences of opinion on what might happen to the price of the battery mineral.

Albemarle Corp., the world’s largest producer of lithium products, has said that it foresees balance in the supply and demand dynamics of the lithium market in the medium term.

Responding in May on an earnings conference call to a question on whether increased demand might lead to additional price hikes in the coming years, company executives said they were confident the market would remain relatively steady.

"We see supply-demand in balance through the midterm, say, through the next five years or so. And so given that the market is in balance, we think that we should not see a lot of volatility in pricing," said John Mitchell, Albemarle’s president of lithium and advanced materials.

But other participants maintain the current price rise is likely to continue.

"The underlying price pressure from China will not change. Even the sceptics are turning around on this story. They are optimistic about the future [of lithium]," one source at a major battery producer told IM.

Lithium carbonate contracts closing during Q2 saw prices of $10-$15/kg (large quarterly contracts, min. 99-99.5% Li2CO3, del US), while lithium hydroxide contracts are closing between $14-20/kg (large quarterly contracts, 56.5-57.5%, packed in drums or bags, del Europe or US).

On the spot market meanwhile, lithium carbonate (min. 99-99.5% Li2CO3, CIF China) is selling on a broad range of $20-28/kg, with lithium hydroxide (56.5-57.5% LiOH, CIF China) prices between $25-30/kg.

Mitchell said that it is Albemarle’s position "to continue to support the market and its growth" and as such is "not seeking to exploit any kind of spot market pricing that people seem to talk about, where they see that type of spot market prices in China".

Albemarle’s view echoes that of a number of sources, who told IM that prices should not be allowed to reach levels that might "kill electrification".

Others have suggested that it is not in the interest of the current major producers – traditionally limited to Albemarle (/Rockwood), Sociedad de Quimica y Minera SA (SQM) and FMC Corp. in South America – to allow prices to escalate to levels that makes it cost competitive for competitors to bring projects online.

Yet participants say it will no longer be possible for the big players to keep prices down.

"I think at the moment it is no longer possible to keep the price low. All these new entrants won’t be scared by the price of operations. There will be volume coming online in the coming years, but it will not be enough," one source told IM.

Then there’s the argument that what goes up must come down, that the boom is in fact a bubble.

"Absolutely it’s a price spike (…) Look at uranium. Look at rare earths," said another source. "In each case you had the narrative of supply not being there, while demand was booming, and look what happened."

Chromite

This month, IM heard from market participants that chromite sand prices were narrowing.

While investigations into the perceived price move are ongoing, news that US refractory and speciality minerals company Minerals Technologies Inc. (MTI) will discontinue its Ruighoek chromite mine and sand plant in South Africa, is a bearish indicator to the industry.

The decision comes as part of the partnership agreement that MTI struck with Glencore South Africa last year to facilitate supply of the latter’s chromite products to a number of markets, including the Americas.

"In early 2015, MTI announced a strategic realignment of its South African chromite business through a partnership with Glencore that would generate improvements in quality, efficiency and cost. Part of this strategy was to take advantage of Glencore’s manufacturing capability. As this partnership has progressed, MTI is now winding down its chromite operations in South Africa," the company told IM.

The chromite opencast mine and processing facility is MTI’s only chromite operation. IM understands the plant has a production capacity of up to 100,000 tpa.

In the future, the supply of chromite products to MTI’s existing customers will be handled by Glencore Corp., while MTI will provide assistance and technical help for all metalcasting applications.

The latest move marks a different direction compared with previous intentions to expand the South African operation. Under the former ownership of Amcol International Corp., the company had earmarked $5m to upgrade and expand the plant back in early 2012.

The stockpiling process

According to the China Rare Earth Association, the stockpiling effort will have three stages, taking a total of 5,200 tonnes rare earths off the market and transferred to a national warehouse, broken down as follows:

Stage 1 (completed by 15 April): 

Yttrium oxide – 700 tonnes

Erbium oxide – 300 tonnes

Total – 1,000 tonnes

Stage 2 (to be completed by 31 May):

Praseodymium-dysprosium oxide – 1,250 tonnes

Dysprosium oxide – 250 tonnes 

Terbium oxide – 46 tonnes

Europium oxide – 54 tonnes

Total – 1,600 tonnes

Stage 3 (to be completed by 31 August):

Praseodymium oxide – 260 tonnes

Neodymium oxide – 330 tonnes

Pra-neo oxide – 750 tonnes

Dysprosium oxide – 580 tonnes

Terbium oxide – 214 tonnes

Other – 466 tonnes

Total – 2,600 tonnes

PRICING NOTICE: Launch of lithium carbonate spot price

Industrial Minerals will publish spot lithium carbonate prices from Thursday May 26th.

Specifications for the assessment are below: 

Description: Lithium carbonate, min 99-99.5% LiC2O3, spot price, packed in bags, CIF China, $/kg

Deal type: Spot price

Currency/Unit: US Dollar $/kg

Shape: Powder

Assessed: By Industrial Mineral’s London and Shanghai office

Publication: Thursdays between 3pm and 4pm

For queries on this price, contact pricing reporter Myles McCormick at myles.mccormick@indmin.com

Questions relating to Industrial Minerals pricing methodology and policy should be sent to Metal Bulletin market data and compliance manager Paolo Sorze at psorze@metalbulletin.com