SHANGHAI, Jun 27 (SMM) - On June 22, Baoshan Iron & Steel and Northern Rare Earth announced that they intend to adjust the transaction price of rare earth concentrates to 39,189 yuan/mt (excluding tax) starting from July 1, 2022. The concentrate price has risen by 45.8% since it was adjusted in January 2022.

The news will raise the separation and smelting cost of PrNd oxide, and is bearish for the magnetic material companies that have a long-term supply relationship with Northern Rare Earth. The bargaining power of magnetic material companies and downstream motor companies is relatively weak, which may exacerbate the losses of related magnetic material companies.

On the other hand, some of the expanded tolling-oriented separation capacity of Northern Rare Earth will be completed this year. On the other hand, the profit of the separation and smelting sector will contract, and the PrNd oxide tolling orders received by Northern Rare Earth may be affected by this decision.

As for the spot market, the news has boosted the bullish sentiment on the future prices of PrNd oxide, and the cost of separation and smelting of light rare earth oxides of Northern Rare Earth will increase. After the release of the news, the inquiries in the PrNd oxide market increased on Thursday, and the price was reported at 930,000 yuan/mt, stable compared with that on Wednesday, while traders were less willing to sell.

Although the sentiment in the trading market has benn affected, the spot prices of PrNd reacted only limitedly. Whether the spot prices of oxide will rise or not is still subject to the fundamentals of supply and demand.

Taking the supply structure of PrNd oxide in China in 2021 as an example, the total domestic supply in 2021 was 77,000 mt. Among them, supply of PrNd oxide from domestic rare earth mining accounted for 45% of the total supplies, secondary materials 30%, and imports 19%.

For the rare earth ores mined in China, PrNd supply from light rare earth ores stood at 29,000 mt, and those mined in Inner Mongolia and Sichuan took up 38% of the total PrNd oxide supply. The light rare earth concentrate supplied by Baotou Iron & Steel Co. to Northern Rare Earth is based on the light rare earth ore mined in Inner Mongolia, which accounted for less than 38% of the supply of PrNd oxide in 2021.

On the supply side, the supply of rare earths in June is still tight, and the ore imports from  Myanmar as well as domestic mining of middle and heavy rare earth ores will see an increase as early as in July.

For terminal demand, the first and second quarters are the peak season for air-conditioning demand, and the downstream inverter air-conditioning sector has been robust. It is reported that Zhenghai Magnetics and Ningbo Yunsheng have signed more orders with air-conditioning compressor manufacturer Meizhi in the first half of this year. In the second half of the year, the demand for air conditioners will weaken in the third and fourth quarters.

The demand for wind turbines in the first and second quarters was stable. With the resumption of work and production in progress, the wind turbine-related orders recieved by some magnetic material companies in Ningbo increased slightly MoM in June. Based on the fact that the bidding volume of wind turbines in the first and second quarters was much larger than the actual installed capacity, it is expected that the demand from downstream wind turbines will continue to grow in the third and fourth quarters.

Although the monthly sales of new energy vehicles in the first and second quarters decreased slightly, with the resumption of production of terminal factories in Shanghai such as Tesla and NIO, the orders upstream magnetic material companies have gradually recovered. According to relevant sources of China Rare Earth Group, supply of rare earth is guaranteed at the policy level to preserve the strategic importance of rare earth sources.

The recent introduction of policies such as the halving of the purchase tax of vehicles is expected to boost the terminal consumption of new energy vehicles. It is expected that the overall demand from rare earth terminals will increase slightly year-on-year in 2022, and the spot price of PrNd oxide will stay firm.