China's rare earth exports rise despite price decline

In recent years, a global gold rush has begun to strengthen supply chains for “rare earths,” which are central to the manufacturing processes of clean energy and other technical components from batteries for electric vehicles and solar cells to smartphones. While the 17 elements of the periodic table, known as “Rare earths' are the subject of much collusion and anxious market speculation, but 'rare' is a bit of a misnomer. Most of these elements do indeed occur in large quantities in nature, although the infrastructure for extracting and processing them has in some cases lagged behind demand as new sectors producing clean energy enter the market.

China in particular was eagerly snapping up Rare earth reserves and contracts in emerging markets for years and now has a firm stranglehold on global supply chains. Beijing alone is responsible for 70% of the world's rare earth ore mining and 90% of rare earth ore processing, according to a Report from June 2023 from the Oxford Institute of Energy Studies. Moreover, China remains the only major producer of heavy rare earth ores on the planet, not because China itself has rich deposits of them, but rather thanks to “decades of state investment, export controls, cheap labor and low environmental standards,” Oxford claims in the report on China's dominance in the rare earth sector and political reactions.

However, China may have gotten ahead of itself, with rare earth prices suffering a significant and sustained decline in 2024 due to lower demand and an oversupply that is becoming a significant problem. “Rare earth exports from China, the dominant producer, rose 7.5% year-on-year in the first seven months of 2024,” according to The Japan Times reported this week, “but prices have fallen nonetheless over this period and are near their lowest levels in more than three years.” This year, prices for dysprosium oxide and terbium oxide have fallen 32% and 26%, respectively, while prices for neodymium oxide and praseodymium oxide have each fallen about 15%.

Rare earth prices rose briefly in July on speculation that China would build up significant stockpiles of these important elements, but such a large purchase never materialized and prices quickly fell back to three-year lows. According to analysis by Rystad Energy, rare earth producers are now sitting on their own stockpiles and hoping that prices will recover in the short or medium term.

The problem of oversupply of Chinese products and materials is a general trend that has already caused much market disruption and despair in the West. “Faced with a weakening economy, China is naturally looking for exports,” Brad Setser, a scholar at the Council on Foreign Relations, told the Wall Street Journal. End of last year“But any significant expansion of Chinese exports beyond current levels will disrupt production elsewhere.” China is already under investigation for unfair trade practices related to market flooding and predatory pricing in a number of countries whose markets have been flooded with Chinese exports at reduced prices.

In fact, sustained Chinese exports during market downturns appear to account for a large part of the current rare earth price deflation. While rare earth prices declined steadily over the first seven months of this year, exports from China still rose 7.5% year-on-year.

While market analysts expect rare earth demand – and hence prices – to recover at some point, there will be no immediate correction. There is no short-term catalyst that will solve the oversupply problem, but demand is likely to pick up slowly and steadily, in line with long-term demand growth in key energy transition sectors such as electric vehicles, thin-film solar cells and wind turbines.

By Haley Zaremba for Oilprice.com

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