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The Reasons Behind Continuous Prices Drop on REE
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The Reasons Behind Continuous Prices Drop on REE

SHANGHAI, Aug 19 (SMM) - Yesterday (August 18), Chen Kelong, director of the Raw Materials Industry Department of the Ministry of Industry and Information Technology, said at the 14th China Baotou Rare Earth Industry Forum that efforts should be ramped up to ensure the stability of the rare earth industry chain and supply chain. Meanwhile, it is key to improve the management of rare earth quotas, standardise the processing and utilisation of resources, and optimise the comprehensive utilisation of tailings resources and associated resources. It will render fall efforts to stabilise the prices of rare earth products within a reasonable range, and guide the sustainable development of upstream and downstream industries.

Regarding the management of rare earth quotas, on August 17, the Ministry of Industry and Information Technology, together with the Ministry of Natural Resources, issued a notice on the release of the second batch of quotas concerning rare earth mining, smelting and separation in 2022. The quotas for rare earth mining and smelting/separation stood at 109,200 mt and 104,800 mt respectively. The first two batches of quotas released in 2022 totalled 210,000 mt and 202,000 mt respectively for mining and smelting/separation, which is determined based on the market demand and the progress of quotas used. 

According to SMM statistics, in 2021, the total quotas for rare earth mining and smelting/separation were set at 168,000 mt and 162,000 mt respectively. In other words, the mining quotas from the first two batches in 2022 have already achieved a 25% growth compared with that throughout 2021; similarly, the smelting/separation quota also saw an increase of 25%. 

From the perspective of different types of rare earth mines, the mining quota of rock-type rare earths in 2022 has grown 28% compared with that in 2021; ion rare earths flat at 19,150 mt, which has remained stable in the past three years.

The YoY growth of mining and smelting/separation quotas in 2021 and 2020 stood at 20% and 6% respectively. It can be seen that the growth of rare earth mining quotas in 2022 have accelerated compared with in previous years.

On the whole, the annual quotas are set through comprehensive consideration of market demand as well as the progress of quotas used. In the long run, SMM believes that the supply tightness in the rare earth market will extend. The solid and steady development of terminal industries such as new energy vehicles, wind power generation, and industrial robots will inevitably bring about an increase in the demand for rare earths. Therefore, heightening domestic mining quotas is also a way to meet additional demand and restore the supply-demand balance in the market.

In terms of rare earth prices, the average spot price of PrNd oxide, for example, soared to 1.11 million yuan/mt on February 22 (the highest year-to-date price as of August 18), an increase of nearly 30% from the beginning of the year, and then kicked off the downward trajectory with a collectively drop of 34% from the YTD high, paring the gains at the beginning of the year.

In the first half of 2022, the rare earth market experienced frequent ups and downs. The prices of PrNd oxide recorded the low and high at 810,000 yuan/mt and 1.1 million yuan/mt respectively, with a price spread of 290,000 yuan/mt.

In January and February, due to the tight supply, the low inventory held by separations companies, coupled with restocking demand of downstream magnetic material companies, pushed up rare earth products prices.

In March, the Rare Earth Regulation Office communicated with key market players regarding the prices of rare earth products, demanding that they shall not participate in market speculation. The pessimism emerged in the market, and the traders surrendered part of their profits to sell, pulling down the prices.

Affected by the pandemic in April and May, the orders placed by magnetic material enterprises decreased, driving down the operating rates as well as the supply of scrap. In addition, the supply of upstream ion ore was tight, and the scrap was also in short supply with prices remaining high. Rare earth prices were firm amid strong support from high cost and tight supply.

In June, the downstream demand was still weak with less orders from magnetic material enterprises, and the orders of some small and medium-sized magnetic material factories were reduced by 30%-40%. Rare earth prices declined amid sluggish demand.

To sum up, the Ministry of Industry and Information Technology has released the second batch of quotas aiming at ramping up the supply, and the market lacks confidence in the prices. SMM believes that rare earth prices will continue to fall in the future.                                                                                                                                                                         
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