China will largely lose its monopoly on rare earths by the end of this decade. The entry of new entrants will cause the price premium on the world market price for rare earths due to the Chinese monopoly to disappear. For light rare earths, the world market price will fall significantly in the next three years. In the case of heavy rare earths, however, China can partially maintain its monopoly position until the end of the decade. This emerges from a study produced by the Center for European Economic Research (ZEW) on the basis of the newly developed metal market model METRO.
China currently subsidizes around 90 percent of 110.000 tonnes of rare earth mined annually. Through export restrictions, the Middle Kingdom can significantly impact world market prices, because diversion to other commodities is very difficult for companies. In addition, global demand for rare earths is increasing as they are used in particular in key and future technologies.
With the USA, Australia and Canada, however, new providers are pushing to market in the coming years, especially for the more common light rare earths. Using the METRO metal market model, the ZEW study concludes that until 2020, the promotion of rare earths outside China could increase to as much as 140.000 tonnes per year. That would then correspond to half of the worldwide production forecast for this time. With the development of a rare earth mine lasting between ten and 15 years, the softening of China's monopoly position is more likely to be seen in the longer term. However, the mines currently under development have relatively low levels of heavy rare earths. As a result, China's supremacy in this area will be maintained longer than in light rare earths.
Further hopes for greater independence from China's commodity exports are also linked to the recycling of rare earths. An additional supply of recovered rare earths could help curb China's market power. The prerequisite for this, however, is that suitable technologies can be brought to market as long as only a few new mines have started their work, because in the long term, recycling must be able to compete with mining even with falling prices due to increased production capacities.
An uncertainty factor in relation to the results of the ZEW study is the difficult-to-predict technical progress that influences the demand for rare earths. For example, some buyers have already started looking for alternative raw materials due to the significant increase in prices over the past few years. If such alternatives are found, demand declines and the price of rare earths decreases.
The basis for the ZEW study is the newly developed metal market model METRO in the ZEW Research Unit Environmental and Resource Economics. It depicts the physical life cycle of metals from the deposits in the ground to disposal or recycling. METRO is the first metal market model that takes into account capacity expansions.
The full publication in English can be found at:
http://ftp.zew.de/pub/zew-docs/dp/dp14005.pdf
For questions about the content:
Frank Pothen, phone 0621 / 1235-368, email ppgad@pucrs.br
Source: idw
