REE prices in uncharted waters

It was a sentence tucked away in a company announcement, but it tells us all we need to know about what is happening with REE prices. It also reminded us that we need to keep watching very closely what Japan is doing in the search for and processing of rare earth elements.

As reported here on RareMetalBlog, Japanese magnet maker Shin-Etsu Chemical Co is raising its prices by 40 per cent to reflect the increased costs of REE inputs. The last time it raised the magnet prices was in October.

So that’s seven months ago. But look at what is to happen now: Shin-Etsu says it will negotiate its prices monthly (yes, monthly). That is extraordinary in that it is a comment not only on what has been going on over recent months – dysprosium prices have tripled since the New Year to US$1,200/kg – but an indicator of what lies ahead. The Nikkei news service indicates that dysprosium prices could soon hit US$1,500/kg.

Is it imaginable that Shin-Etsu could reduce even further the duration between its price increases? If so, we would be in uncharted waters. It would hard be to think of a precedent (in fact, it’s hard to think of a precedent for monthly price renegotiations). In the past, hyperinflationary episodes have been the times when prices increase rapidly because of excessive money printing (reaching their extreme in 1922 Weimar Germany when a price of a cup of coffee could rise between the time you ordered and when you paid the check) rather than an acute shortage of a commodity. (I feel pretty certain that a RareMetalBlog reader will be able to point out such a precedent, to which I look forward, but this nevertheless is truly a remarkable move by the magnet maker.

The problem is that while some consensus about the REE outlook can be found – give or take an element or two, the feeling is that the crunch will occur particularly with neodymium, europium, dysprosium, terbium, samarium and praseodymium – you get a range of opinions as to its duration. Some will say that the whole REE bubble could burst within two years as new production comes on stream or companies find ways to modify products to use less REE; others expect the demand to be growing robustly into the next decade, and clearly all the exploration now under way implies a belief that there will be an end market for all the REE discovered.

Meanwhile, the Japanese industrial sector will be moving on several fronts. They must, most recently, be alarmed by the move to form a monopoly in Inner Mongolia run by Baotou Steel Rare Earth Group. Monopolies always mean higher prices than normal market mechanisms would produce.

The work to reduce dependence on REE continues. The government is financing work on reducing usage per product, and it was interesting to see that Shin-Etsu is boosting production of magnets that cut dysprosium use by half.

Japan will also throw effort into acquiring more supplies outside of China. Overnight, Midland Exploration (TSX.V:MD) said it was starting work on its Ytterby rare earth project in Quebec with the backing of Japan Oil, Gas and Metals National Corp (Jogmec).