(Updated: 29th June 2023)
Quick notes on Rare Earth Elements (REEs) which are are used to make magnets used in hybrids, EVs and windmills.
- As you're extracting 7 or 8 elements, processing is far more technical and complex, than an iron ore or copper mine for example.
- There's no benchmark pricing, so its hard to new entrants to get long term contracts needed for financing.
- Production involves several steps. And for each step, the product has to go through a rigid qualification process. So you usually complete one step at a time, each of which takes one or two years.
Processing Stages
- Mine the ores (which have < 10% concentration of Total Rare Earth Oxides (TREO)) and upgrade it to concentrates of at least 60% TREO for further processing. Starts with a mechanical process, followed by a chemical process.
- Separate the concentrates into individual Rare Earths Oxides. When extracting, we have to move from left to right on the periodic table, extracting the lightest first. You can't choose the ones you want to extract. For example, if we want to extract Nd, we have to extract La, Ce and Pr first, in that order.
The rare earths we want for magnets are Nd, Pr, Tb and Dy. The elements on the left are low priced money losers, and the heavier ones on the right are precious. So the concentrations of different light and heavy elements matter. For example, typically you may have 25% La, 25% Ce and 1% Dy. Current prices (USD/kg, early June 2023) are in pink - see the wide variation.
Scandium (Sc) is not really an REE (its like aluminium), so is not subject to the above extraction order. Its grouped with REEs because its often found with them.
This is the hardest stage of production. It is challenging for a newcomer to prove they can produce the correct amounts of oxides consistently.
- Produce Alloys from the oxides. Low margin business which requires strong environmental safeguards.
- Produce Magnets. Needs to be produced under license, using patents for one of 2 processes. Both processes were developed in the 80's: one by GM is now held by a Chinese company, and another by Sumitomo which is now held by Hitachi. So you need to license from Hitachi.
Industry Structure
There are 5-10 producers within China, and 2 outside it (Lynas and MP):
Other Chinese companies (not shown above) are China Rare Earth Group (a merger of 6 SOEs), Shenghe Resources (who buys from MP above), GuangSheng Nonferrous, Yuijing & Huicheng Environmental Protection. A lot of China's rare earth production is a side-product (eg: from iron ore), so it does not have to be economical.
China dominates rare earths metals at every stage. Its been hard for other junior producers to start up, as they have to build a mine and separation facilities (around $25-50m), while arranging off-take agreements to get financing, under the shadow of China holding prices below production cost. This prevented new players emerging, at least till the 2021 bull market. It takes around 3-5 years to get mining and separation facilities up and running.
Prices
I haven't been able to find free long term charts of all the rare earth elements. But they seem to follow each other:
La, Cr, Nd and Pr: 2003 to 2015:
La, Nd and Pr: 2008 to 2018:
The only recent chart:
Source: tradingeconomics
Prices peaked in 2011 after China blocked exports to Japan in 2010, for a week. They peaked again in the "everything bubble" of 2021/22, before falling 55%. A bet on REEs now is a bet that increasing EV penetration and "green energy" drives demand up, while supply takes time to come online (takes years to start up mines and separation facilities) despite US government subsidies.
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