Pr-Nd oxide production in July declined 11% MoM, will demand recover in August to break the deadlock? [SMM analysis]

SMM, July 31: In July, China's rare earth oxide market saw a significant supply contraction. According to statistics, Pr-Nd oxide production fell by 11% MoM, a decline driven not by a single factor but by simultaneous production cuts at both raw ore separation enterprises and scrap recycling enterprises. Some raw ore separation plants proactively halted operations pending further policy guidance; the scrap recycling side was even weaker, as enterprises already in a state of reduced production not only failed to recover but some further curtailed output. The price inversion between scrap and product selling prices intensified, and operational pressure in the recycling segment remained greater than in the raw ore segment. Medium-heavy rare earth oxide production was also affected, showing a notable MoM decline.

Looking ahead to August, the market holds cautiously optimistic expectations for supply recovery. On one hand, market participants are generally awaiting policy guidance for H2 production, which will clarify the operating conditions of separation plants and is expected to bring operating rates back to normal levels. On the other hand, some leading scrap recycling enterprises plan to attempt a small-scale production resumption in August, but constrained by profit margins, the actual recovery momentum may be limited, and the overall increase in operating rates is expected to be mild. Overall, rare earth oxide production in August is likely to edge up MoM, but the recovery pace will not be overly aggressive, especially in the scrap recycling segment. Most market participants believe that the incentive to resume production there will continue to be suppressed, so while supply improves marginally, it will be difficult to quickly return to the highs seen earlier this year.

The real game of the market now lies in when demand will kick in. Recently, downstream magnetic material enterprises have been mainly digesting long-term contracts, with low spot market inquiry activity. Buyers and sellers have different psychological price levels, leading to a stalemate where rare earth oxide prices struggle to move up or down. Most industry players are eyeing the second half of August, as according to traditional seasonal patterns, the "September-October peak season" is the peak consumption period for rare earth permanent magnets, and downstream pre-stockpiling typically begins in mid-to-late August. If end-user orders then pick up noticeably as expected, concentrated procurement demand will directly break the current supply-demand weak equilibrium. Since supply recovery is limited while demand elasticity is greater, once orders surge, the supply-demand gap may widen, thereby pushing rare earth prices to break through upward.