Corrected: FOCUS-Western miners seek premium pricing for rare earth metals to break China grip

Neo Performance Materials

08/11/2023 18:15

(Removes word 'half' in paragraph 21)
    By Divya Rajagopal
       TORONTO, Nov 8 (Reuters) - A handful of Canadian, German
and Australian critical mineral explorers plan to command
premium prices for key metals used in electric vehicles,
promising quality and consistency in exchange for shifting
reliance away from China, the dominant producer and
price-setter.
    China controls 95% of the production and supply of rare
earth metals, integral to manufacturing magnets for electric
vehicles (EVs) and wind farms, and this monopoly has allowed
China to dictate prices and stir turmoil among end users through
export controls.
    Now, mining companies such as TSX-listed Aclara Resources
 ARA.TO  and Australia's Ionic Rare Earths  IXR.AX  are
discussing plans that may loosen China's grip on the critical
minerals market, moving towards market-determined prices,
company officials told Reuters.
    Canadian miner Neo Performance Materials  NEO.TO  and
Germany's Vacuumschmelze are also discussing similar plans,
people familiar with the matter said. The two companies did not
offer comment when reached by Reuters.
    "The controls on strategic minerals (by China) continues to
escalate, it comes as no surprise if rare earths are next," said
Ramon Barua, CEO of Aclara Resources, which is developing a
heavy rare earth project in Chile.
    Aclara is looking to mine heavy rare earth metal, such as
dysprosium, and is in talks with original equipment
manufacturers (OEMs) for a premium pricing as part of a
long-term offtake deal.
    The previously unreported plans come as the miners seek to
benefit from the Group of Seven (G7) countries' move to
incentivize miners and automakers to produce and procure
critical metals domestically or from friendly nations.
    In exchange, these miners expect end users to pay a premium.
They argue that geopolitical tensions between the West and China
risk the reliable supply of rare earth minerals. If China
persists with export restrictions, as it has with commodities
like as germanium and graphite, supply could be further
compromised.
    Rare earths, a group of 17 elements used in various products
including EVs, wind turbines, and consumer electronics due to
their magnetic and electronic properties, garnered renewed
attention after Beijing last month announced export permit
requirements for some graphite products from December to protect
national security, citing national security concerns.
    For instance, the current price of neodymium, used to make
the most powerful magnet in the world, varies between $73 to
$520 per kg and companies say ex-China prices could be 30% more
than the current quoted price.
    Aclara's Barua said that Western supply of rare earth
elements will not develop if it depends on Chinese prices.
    "The West will be able to supply environmentally responsible
and traceable rare earths, but the cost structure is different
to the Chinese and hence it comes at a premium," he said.
    
    IRA LEVERAGE
    The miners believe manufacturers will absorb extra costs due
to new environmental, social and governance-related legislation
and tax incentives like the U.S. Inflation Reduction Act and
argue that a premium price is warranted for reliable and
sustainably sourced rare earths that are key to the transition
to cleaner energy.
    For any OEM, the quandary of differential pricing is about
being able to judge a quantifiable value that paying higher
price brings.
    "What we as OEMs want is a global level playing field, and
that means having a transparent, sustainable and reliable
pricing," Badrinath Veluri, chief specialist at Grundfos, an OEM
based out of Denmark that manufactures water pumps that use rare
earth magnets.
    Veluri added that if any supplier is claiming that they
bring value by charging higher prices, he wants to see the
specific merits of that claim.
    "The price of any metal (rare earth or otherwise) that is
coming from China or from western countries has the same
pricing, so why should rare earth pricing be different?" Veluri
asked.
    The discussion on pricing has come up often in the Rare
Earth Industry Association, said Veluri, who is also the
president of the global organization with partners representing
the whole rare earth value chain.
    U.S.-based MP Materials  MP.N  and Australia's Lynas
 LYC.AX , the world's two biggest rare earths companies outside
of China, were not immediately available for comment.
    Developing rare earth mining projects can take decades, and
investor risk aversion has derailed the viability of some
projects outside of China. While Vietnam, Malaysia, and Myanmar
offer alternatives to China, their final production remains
distant.
    Companies have suggested pricing alternatives such as
selling rare earth concentrates at their cost of production plus
capital cost, ensuring mines remain profitable. Another option
is to cap prices at those offered by Chinese rare earth makers,
protecting OEMs from drastic price fluctuations.
    The other option is taking into account the price offered by
Chinese rare earth makers and putting a ceiling to it, so even
if there is a 100% jump in rare earth prices, OEMs do not end up
paying for those fluctuation.
    These mechanisms could boost the cost of an EV, which uses
rare earth magnets in its motor, by at least 30% to 50%.
    "Everything ultimately is about trade off," said Tim
Harrison, managing director of Ionic Rare Earths. "If you want a
product tied to sustainability metrics, minimizing carbon
footprints etc, then obviously that is being delivered with cost
and that needs to be reflected in the price that supply chain is
prepared to pay," Harrison added.
    "The OEMs probably won't pay a higher price for stuff that
they buy in high volumes, such as lithium," said Flavio Volpe,
president of Automotive Parts Manufacturers Association, the
lobby group that represents Canada's OEM producers of parts and
equipment.
    "But for things like cobalt, copper, or rare earth metals
there is a good strategic play to find with a mining partner."
Volpe added.

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China's rare earths dominance in focus after it limits germanium
and gallium exports    https://www.reuters.com/markets/commodities/chinas-rare-earths-dominance-focus-after-mineral-export-curbs-2023-07-05/
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 (Reporting by Divya Rajagopal
Editing by Denny Thomas and Marguerita Choy)
 ((mailto:divya.rajagopal@thomsonreuters.com;))