Rare Earths MMI Can’t Gain Despite the Broad Rally

by Jeff Yoders on MAY 9, 2016

The Rare Earths MMI joined copper this month as the only sub-indexes that didn’t increase this month.

During 2015, flat performance was, relatively, a moral victory as we saw commodities fall across the board against a strong dollar. It’s now safe to say, though, that that environment is shifted as the dollar has weakened and a broad commodities rally has set in. Standing still is now tantamount to falling behind.

Of course rare earth elements are difficult to track as many of the high-tech elements not exchange-traded and their prices and production can be hard to come by. Efforts to modernize the industry, particularly in China, have not yet been able to add transparency to their production and pricing.

China’s Ministry of Industry and Information Technology (MIIT), however, intends to change that by setting new standards for domestic rare earth producers. The proposal is still being discussed in Beijiing, but the idea is to specify minimum production utilization levels, recovery rates and yields, as well as to implement an exploitation plan that complies with environmental standards.

In the first quarter of 2016, average operation rates at Chinese smelters was 52.6%. If the new utilization plan is implemented, though, the expectation is that the rates will rise above 65% at the outset, according to Core. This might help to add transparency in the long term, but In the short-term, higher production rates may place further downward pressure on prices.

There have also been rumors, since April, that China’s National Development and Reform Commission would begin stockpiling material again soon and many buyers are holding off purchases ahead of assumed government stockpiling.

India is also ramping up production and auctioning rare earth mining blocks. So, RE prices remain in their low range without much upward pressure.