INDUSTRY BULLETIN: “Boom, bust and boom again for rare earths?”
In a recent article, Andy Home, writing for Reuters, posed this very question. He leads off by noting that, “All commodity markets are prone to boom and bust cycles, but few have been as spectacular as that experienced by rare earths at the turn of the decade.” Long-time Avalon Advanced Materials’ shareholders will remember that rare earth boom well and will be encouraged to know that there are now clear signs that rare earth demand and prices are starting to recover.
Home notes that the critical magnet metals, neodymium and praseodymium, “are back.” In fact, prices for neodymium and praseodymium oxide are up by over 80 percent since the start of the year. Home attributes this resurgence to happenings in China: the world's dominant producer of these critical materials, whose supply chains are fast adapting to the rapid transition to electric vehicle technology that is also driving the growing demand for battery materials, particularly lithium.
Neodymium and praseodymium are already two of the most commonly used rare earth elements (“REE”), “accounting for 36 percent of global REE consumption in 2015”. One major application is in the magnets used for electric motors, which is the major area where they enter the electric vehicle supply chain. Automakers, including Tesla with their new Model 3, are planning to use permanent magnet electric motors instead of AC induction motors. Chinese magnet producers are ramping up capacity to feed the ambitious electric vehicle targets of global automotive manufacturers. The outcome is an increasing shift to long-term, lock-in contracts for supplies of REE such as neodymium and praseodymium. As large Chinese producer and user groups lock up future sourcing, the supply of material for the spot market is diminishing, squeezing spot prices higher.
In China, official exports have been steadily increasing, up 26 percent in 2015 and another 34 percent in 2016. Unofficial exports initially boomed as well in response to those sky-high prices, causing a surge in supply that kept REE prices at rock-bottom levels until this year. Illegal production, however, seems to be waning, with Beijing consolidating its REE sector into six large groups and waging a war of attrition against the unofficial sector. Home strongly suggests that that one thing is clear: prices will not fall back down to the level seen at the beginning of 2017, nor are they likely to increase to the unsustainable levels seen in 2011.
Global REE supply remains constrained despite all the investor interest in 2009-11 - from which only one significant new REE producer emerged outside of China: Lynas Corp, which operates the Mt Weld mine in Western Australia. However, much of that output is already committed to customers in Japan keen to diversify their supply sources.
Renewed REE demand and a reinvigorated cycle of interest in creating a supply chain outside China was inevitable. Accordingly, Avalon has kept its Nechalacho Rare Earth Elements Project on hold and ready to re-activate when interest from capital markets returns. With a completed Feasibility Study, Nechalacho remains one of the few advanced REE projects outside China that is in a position to offer a sustainable new supply of rare earths to the global marketplace.
For questions or feedback, please email Avalon at ir@AvalonAM.com
About Avalon Advanced Materials Inc.
Avalon Advanced Materials Inc. is a Canadian mineral development company specializing in niche market metals and minerals with growing demand in new technology. The Company has three advanced stage projects, all 100%-owned, providing investors with exposure to lithium, tin and indium, as well as rare earth elements, tantalum, niobium, and zirconium. Avalon is currently focusing on its Separation Rapids Lithium Project, Kenora, ON and its East Kemptville Tin-Indium Project, Yarmouth, NS. Social responsibility and environmental stewardship are corporate cornerstones.