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Global supply and demand for rare earths were estimated to be in oversupply in 2015, as demand for rare
earth magnet materials like Nd and Pr drove overproduction of Ce, La and most other rare earths, and illegal or
unauthorized REE production from China acted as the swing production in the market. Recent estimates indicate
that illegal mine production of rare earths in China was perhaps as much as 45,000–55,000 tonnes, or approximately
25%–30% of global supply. Certainly, the continued decline of rare earth prices in 2015 and early 2016 indicated
that REE consumers continue to find the needed rare earths readily available.
Chinese official domestic REE production is expected to increase at a rate of 4.4% per year from 2015 to
2020, while illegal mining is forecast to increase 6%–8%, unless the government’s measures to consolidate the rare
earth industry and curtail illegal mining have some impact. These two factors together imply a future overall growth
rate of around 6% for domestic Chinese production. Rare earth production in the rest of the world, though only 13%
of estimated
2015 production, is expected to grow at a faster rate as Lynas Corporation (“Lynas”) expands
production and a few other non-Chinese operations potentially come on-stream. In 2015, Lynas reached its Phase I
design production capacity of 11,000 tonnes per annum while Molycorp’s Mountain Pass operation was placed on
care-and-maintenance while bankruptcy proceedings continue.
Despite industry forecasts that indicate that the overall REE market might be oversupplied for the next few
years (largely based on illegal mining in China), it is expected that certain lower-value REE elements (particularly
Ce and La) will represent the largest portion of this oversupply, while other elements may be more in balance or
even in deficit, particularly magnet materials and HREEs. Several market observers cite magnet materials especially
as being at risk of short supplies in the near- to medium-term future.
As a result of increased investment in the REE industry outside of China since 2009, there are several new
and refurbished REE projects that are being developed that could add to the non-Chinese supply of rare earths over
the next two to five years. However, given the present state of the rare earth market, pricing and lack of support
from strategic end-users or governments, it is difficult to forecast which other rare earth projects, if any, will be able
to find the capital needed to construct their facilities. Some market observers believe that this new potential
production may have a negative impact on the pricing of some REE products, especially the LREEs of La and Ce.
We believe that current rare earth prices and the present lack of capital available for new rare earth projects are
likely to temper this potential production growth. According to an IMCOA report dated September 2015 (the
“IMCOA Report”), REE total supply is forecasted to increase from 175,000 tonnes in 2014 to 250,000 tonnes in
2020, an implied compound annual growth rate (“CAGR”) of 7.4%.
Trends affecting demand of REE products
The global economy and the speed of technological innovation play key roles in the continuation and pace
of increased demand for REEs. If the global economy experiences a prolonged period of slow growth, then the
projected increase in REE product demand may not occur at the pace expected. In addition, the spike in REE prices
in 2010 and 2011 to extremely high levels seems to have accelerated consumers’ efforts to economize on rare earth
consumption or to use substitute materials and therefore slowed the expected pace of demand growth. Based on the
IMCOA Report, REE total demand is forecasted to increase from 146,000 tonnes in 2015 to 200,000 tonnes in 2020,
or an implied CAGR of 6.5%, driven mainly by demand for magnet materials, metal alloys, glass polishing materials
and catalysts. Based on forecasted production levels, these figures would imply a significant oversupply of total rare
earths in 2020. A more detailed analysis of the supply/demand balance by element suggests that the oversupply is
largely driven by significant imbalances in the Ce, La and Y markets. In the IMCOA Report, the excess Ce and La
production seems to be a result of (1) demand destruction caused by very high REE prices in 2011, and
(2) overproduction driven by strong demand for magnet materials Nd, Pr, and Sm. Meanwhile, the Y imbalance
may be driven by the transition from fluorescent lighting to LED technology in combination with overproduction
driven by strong Dy demand for magnets. The projected imbalances in other more highly valued rare earth elements
are generally much smaller, and in fact, Nd and Pr are expected to remain in relatively short supply for the next few
years.