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Coronavirus disruption brings China's rare earth metals monopoly into focus

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Coronavirus disruption brings China's rare earth metals monopoly into focus

China's stranglehold on rare earth metals and their supply chains has been highlighted by the disruption wrought by the coronavirus pandemic, prompting governments and buyers to look for alternative sources.

There was significant disruption to rare earth refinery output in February with closures at facilities extending from the Lunar New Year and into late February and early March, David Merriman, manager of battery and electric vehicle materials at consultancy Roskill, told S&P Global Market Intelligence. The main issue for rare earth supply chains has been the distribution and transport of raw materials and finished products, Merriman said.

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"Delays to shipments of products to consumers domestically [in China] and internationally are now filtering through the supply chain, which is causing some product shortages," Merriman said. "For rare earth magnets, there is an agreement that domestic consumers are being preferentially supplied over international customers, though this is likely more to do with the fact that many [rare earth] magnet producers in China are integrated beyond magnet manufacturing and are consuming magnet materials internally rather than supplying them for export."

Roskill expects refined neodymium-compound supply to be very tight in 2020 and markets for other magnetic rare earths, such as dysprosium compounds, to remain under pressure.

"Looking out over the medium to long term though, the outlook is unchanged: we're going to see [electric vehicle] demand growth and wind power generation installations," Adamas Intelligence's managing director, Ryan Castilloux, told Market Intelligence. "If anything, there's potential for even greater investment into some of these applications given that governments are going to need to stimulate economies as they open up again and these supply chains are already in their infancy going into this virus and can offer low-hanging fruit as avenues to direct stimulation and then incentivization and policy."

Even before the coronavirus hit, there was growing momentum, driven by governments, to diversify the global supply chain of the strategically important minerals, according to Castilloux.

The only large-scale producer of separated rare earth compounds outside China, Lynas Corp. Ltd., was awarded Pentagon funding in April for a heavy rare earth separation plant in Texas, while privately held MP Materials was likewise chosen for the creation of a processing facility at the United States' only operating rare earth mine, Mountain Pass in California.

Despite its strategic importance, the military probably only accounts for about 1% of demand for rare earths, according to Castilloux. Though that percentage can multiply from year to year with large orders such as aircraft, the bulk of demand relies much more on purchases of electronics like phones and computers as well as cars.

Initial concerns shifted from whether China would be able to continue to supply rare earths as the coronavirus spread to concerns about western demand just as lockdowns came into force in Europe and the U.S., Castilloux explained. As a result, the overall market has remained relatively balanced since the world got the rare earths it needed at the end of 2019 in anticipation of the Lunar New Year holiday season before demand crumpled.

"Going into the outbreak, the supply-demand balance was much tighter for dysprosium and terbium in particular than it was for the light rare earths," Castilloux said. "Shutdowns ... quickly consumed a lot of the material that was floating around in the market, and we saw prices rise in reflection of that. But with that said, the neodymium-praseodymium market doesn't operate with a lot of overhang either, so looking ahead, if demand does start to come back in Europe and in North America, with say, automakers start manufacturing again at full capacity, then we're likely ... to see upward momentum behind those two light rare earths as well."

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It will take a global effort to keep up with demand growth for the four magnet rare earth metals — neodymium, praseodymium, dysprosium and terbium — in particular, according to Castilloux.

"[China] recognizes that it has a stranglehold ... on all of the downstream value-added steps, so while the world may [set up] mines and potentially some separation plants, a good portion of that output is still going to go into China for production of metals and magnets and motors and [electric vehicles], so they still stand to gain in that scenario," Castilloux explained.

Russia is one alternative source of rare earths, according to Merriman, though much of the output from its main processing hub, Solikamsk Magnesium Works, is already destined for Silmet in Estonia or for further separation in India.

"Shipments from Estonia have diversified in recent months, with more material heading to the U.S., Japan and back into the Russian market," Merriman said. "Though there is some room for ramp-up, Silmet's output is limited by the feedstock availability from Solikamsk, which itself receives [rare earth] feedstock as a byproduct of titanium mining in Murmansk."

"The Russian [rare earth] projects under development are still years away from commissioning and are investigating supply of materials to the domestic market and China so are unlikely to provide any short-term assistance to the rest of the world," Merriman said.

"Nations such as the United States, Morocco and Russia have enough rare earths in their phosphates to make any of them ... independent of Chinese supply," Jack Lifton, a senior fellow of the Institute for the Analysis of Global Security, told Market Intelligence in September. "The problem outside of China is the lack of a total supply chain to produce rare earth-enabled products."