SHANGHAI, Apr 21 (SMM) - The supply side is still expected to remain tight in the short term, and the separation enterprises will meet difficulties in restocking. Affected by the pandemic, logistics and transportation are not smooth, and some magnetic material factories have reduced the production in response, resulting in supply tightness of scrap. Therefore, the supply side is now favourable to market prices. However, the downstream demand has been quite weak. Due to the severe pandemic situation in Shanghai and Jilin, most new energy vehicle (NEV) and auto parts manufacturers have stopped the production, and the overall terminal demand in the second quarter is likely to shrink, which was gradually transmitted to the upstream industry chain. To sum up, the situation of weak supply and demand may remain in the short term, and it is expected that the market prices will mainly move rangebound in the second quarter.

PrNd oxide and alloy output in Q1

The output of praseodymium neodymium (PrNd) oxide was 16,843 mt in the first quarter of 2022, an increase of 3.89% from the previous quarter. The main increase was contributed by Jiangxi and Sichuan, and the decrease mainly came from Hebei, Jiangsu and other places. Also in Q1, the output of PrNd alloy stood at 15,035 mt. The main increments were found in Zhejiang and Gansu, and the reductions mainly happened in Inner Mongolia, Sichuan, Jiangxi, Guangxi and other regions.

Overall, the increase in PrNd oxide output is limited, mainly due to tight supply of raw materials. Affected by the pandemic, imported mineral resources decreased. Enterprises relying on imports mainly consumed old stocks. Hence it is difficult for the output to rose significantly. Meanwhile, some enterprises stopped the production during the Spring Festival, hence the supply of scrap was tight in February. Therefore, in general, the increase in PrNd oxide output has been limited. In the first quarter, the output of PrNd alloy declined slightly. Some metal enterprises were under great financial pressure, and maintained the output on rigid demand. There were also magnetic material factories stopping the production during the Spring Festival. In addition, rare earth prices fell in March, and downstream magnetic material factories were less interest in picking up goods. Metal enterprises received less orders, hence the output fell.

Downstream consumption of rare earths

In the first quarter, about 4,500 mt of rare earth permanent magnets were consumed, an increase of 142% over the same period last year. At present, due to the impact of the pandemic, many new energy vehicles and auto parts manufacturers in Shanghai and Jilin have stopped the production, and the terminal demand has also shrank, which has gradually been transmitted to the upstream industry chain, resulting in a quiet rare earth market and a decline in orders.

From January to February 2022, the consumption of NdFeB magnets in China's wind turbine industry is about 4,000 mt, up 61.01% from the same period last year. In the carbon neutrality era, the wind power field is developing rapidly. From January to February 2022, China's installed wind power capacity was 5.73GW, an increase of about 61% year-on-year. Therefore, the demand for NdFeB increased, and the future demand will continue to grow.

China's rare earth exports

China is currently the world's largest producer of rare earth permanent magnet products. In recent years, China’s output has basically remained at more than 90% of the global total. Export is one of the main sales channels for China's rare earth permanent magnet products.

China’s rare earth permanent magnet products exports from January to November rose 18.61% year-on-year to 8,500 mt, Under the goal of carbon peaking and neutrality, new energy vehicles, wind power, industrial robots and other sectors have posted rapid development. Meanwhile, the penetration rate of rare earth permanent magnet motors in the fields like industrial motors, inverter air conditioners, and energy-saving elevators is also on the rise. All of these will drive a substantial increase in the demand for rare earths. The position of rare earth as a global strategic standing resource is becoming more and more prominent.

China’s rare earth permanent magnets are exported to Europe, the United States and East Asia, while magnetic strips and NdFeB magnetic powder are mainly sold to Japan and Germany. China's rare earth resources are mainly exported to developed countries. From January to February 2021, the top five countries in terms of export volume are Germany, the United States, South Korea, Vietnam and Italy, accounting for 18%, 17%, 14%, 11% and 10% respectively of China’s total exports.

Quarterly Review and Outlook of Rare Earth Market

At present, the domestic pandemic situation is quite severe. As of April 18, 2022, there were 9 high-risk areas and 157 medium-risk areas across the country. Affected by the pandemic situation in the Yangtze River Delta and the Pearl River Delta region, the transportation of goods has been uneasy, and some metal enterprises see less orders, and there is a certain inventory pressure. Most of the downstream magnetic material factories are located in the Yangtze River Delta region.The pandemic has brought great difficulties to restocking activities, and some magnetic material factories have reduced the production by 20%-30%. Shanghai and Jilin, as the main producing bases of domestic vehicles and auto parts, cannot supply normally due to the COVID. Giants such as Tesla and NIO have been forced to suspend the production, which has a bearish impact on the terminal. Recently, Shanghai plans to facilitate the production resumption of a number of enterprises, and Tesla, Volkswagen, etc. are preparing to resume the production. But the overall situation has failed the expectation, and it may not be able to bring palpable benefits to the industrial chain in the short term.

In the first quarter of 2022, the rare earth market (taking PrNd oxide as an example) showed an inverted V-shaped trend. 

Prices rose slightly in January. After New Year's Day, the downstream magnetic material factories stocked up one after another, hence the demand increased, and the inquiries were also active, which boosted the confidence of the industry. In addition, the supply tightened due to transportation disruption ahead of the Spring Festival, shoring up market prices from 850,000 yuan/mt to 950,000 yuan/mt.

After the Spring Festival holiday in February ended, and the industry players resumed work one after another. Due to limited restocking of magnetic materials companies before the holiday, the demand was still robust. In addition, the imports of ores from Myanmar were restricted due to the impact of the pandemic. Some magnetic material enterprises stopped the production during the Spring Festival, resulting in less supplies of scrap. In other words, the supply shortage deepened. Under the support of tight supply and high demand, the prices increased rapidly from 950,000 yuan/mt to 1.1 million yuan/mt. 

From late February to early March, the mainstream prices of PrNd oxide hovered at a high level. During this period, as most magnetic materials companies have finished their restocking for the first quarter, and the demand turned weak. And the rapidly rising prices of rare earths were also unfriendly to the downstream. The prices moved rangebound under the game between upstream and downstream.

In mid-to-late March, rare earth products prices showed a downward trend. After government regulators interviewed several market players, the traders were scared off by the high prices and left the market after selling off. Separation companies, metal companies and downstream magnetic material companies had a strong wait-and-see mood, and the market trading subsided. Due to the decline in prices, industry players inclined to purchase on hikes rather than dips, and mainly consumed old stocks as the prices dropped. As of end March, PrNd oxide prices stabilised at 950,000 yuan/mt, and the prices of PrNd alloy stood at around 1.18 million yuan/mt.

Enterping April, PrNd oxide prices kept falling and once touched a low of 800,000 yuan/mt, and the prices of PrNd alloy declined to around 1.11 million yuan/mt, In mid-April, the prices rebounded slightly, and the price of PrNd oxide and alloy recorded 830,000 yuan/mt and 1.03 million yuan/mt respectively. 

Conclusion

In the short term, the China-Myanmar border has not yet been opened, and the import of ores from Myanmar has been blocked. MP mine in the United States reduced the production by about 40% in March. The supply side is still tight, and the separation enterprises will face difficulties in restocking.

Affected by the pandemic, logistics and transportation are not smooth in the Yangtze River Delta region, and some magnetic material factories have reduced the production in response, resulting in supply tightness of scrap. Therefore, the supply side is now favourable to market prices. However, the downstream demand has been quite weak. Due to the severe pandemic situation in Shanghai and Jilin, most new energy vehicle (NEV) and auto parts manufacturers have stopped the production, and the overall terminal demand in the second quarter is likely to shrink, which was gradually transmitted to the upstream industry chain. The overall terminal demand is likely to shrink in the second quarter, which will gradually be transmitted to the upstream industry chain.