Rare earth prices: Molycorp, Lynas Corp and Baotou Steel in focus
Friday, November 04, 2011 by Anthony David
Early 2011 saw stock prices of rare earth companies soaring upwards with the share price of Colorado based Molycorp Inc. reaching $79.16 per share. However, Molycorp share prices fell by 32% over four days in September. The price fall was partly because of falling rare earth prices worldwide combined with excess inventory and partly because of overall market trends.
Stock prices of Australia’s Lynas Corp have also been adversely hit by falling rare earth prices. Average rare earth oxide prices have fallen almost 20% over the last quarter. Recent developments could however bring about another hike in rare earth prices, which would mean sunny fortunes once again for non-China based rare earth producers.
The world’s largest rare earth producer, China’s Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech, has halted production for a month in an effort to push prices upwards. A company official said, “Production should resume in a month as it is just a provisional measure.”
According to the company, the current move to stop supplies of raw materials to its processing units was to “stabilize the market and balance supply and demand.” A similar month-long production halt had been called in May 2008 as well. Investors have not reacted positively to the announcement and Baotou’s stock price fell by almost 4%.
In September this year, Baotou purchased praseodymium-neodymium oxide at above market rates in spite of being a producer of the oxide. The company stated that the move was to “protect resources and maintain market stability.”
Baotou’s announcement has been taken with a pinch of salt by the global rare earth community. The Financial Times wrote, “Baotou’s move suggests that Chinese efforts to control rare earths prices could be greater than previously thought.”
Rare earth analyst Sam Berridge of RBS said, “We would expect a month-long shutdown from the largest producer in the world to impact prices reasonably quickly. Rare earth production is quite consolidated and the market is quite small, so one of the majors could influence the supply-demand balance quite easily.”
China’s actions could help rare earth prices climb although new supplies from Australia, Canada and the US could once again flood the market bringing prices down. In the meanwhile, companies such as Molycorp will benefit from Baotou’s announcement. In fact, analyst Paretosh Misra of Morgan Stanley has predicted that Molycorp’s stock price could reach $90 in the near future.
Molycorp’s mines will reach full production next year while Canada’s Avalon Rare Metals and Quest Rare Minerals are yet to report profits. Both companies are much smaller and more volatile than Molycorp but both have rare earth deposits that would soon be rated as the world’s largest.
Rare earth deposits have been discovered at other global regions too. Mongolia has a huge deposit of rare earth metals and most of it is untapped. A 2009 survey by the US Geological Survey (USGS) estimated that Mongolia had about 31 million tonnes of rare earth metals, which places the country just after China in terms of deposit size.
Kazakhstan is another nation that intends to make an entry in the rare earth sector in 2012. The state nuclear company Kazatoprom has signed separate exploration agreements with the French Bureau for Geological and Mining Research, and Japan’s Toshiba Corp and Sumitomo Corp.
The USGS has also reported rare earth deposits in southern Afghanistan. The estimates have been pegged at 1 million metric tonnes although Afghanistan’s infrastructure and political climate are not conducive to rare earth development right now. Robert Tucker, lead author of the USGS report, said, “I fully expect that our estimates are conservative. With more time, and with more people doing proper exploration, it could become a major, major discovery.”
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