Western miners target China's rare earth metals grip with premium prices
World
China controls 95% of the production and supply of rare earth metals
TORONTO (Reuters) - A handful of Canadian, German and Australian critical mineral explorers plan to command premium prices for key metals used in electric vehicles, promising quality and consistency in exchange for shifting reliance away from China, the dominant producer and price-setter.
China controls 95% of the production and supply of rare earth metals, integral to manufacturing magnets for electric vehicles (EVs) and wind farms, and this monopoly has allowed China to dictate prices and stir turmoil among end users through export controls.
Now, mining companies such as TSX-listed Aclara Resources (ARA.TO) and Australia's Ionic Rare Earths (IXR.AX) are discussing plans that may loosen China's grip on the critical minerals market, moving towards market-determined prices, company officials told Reuters.
Canadian miner Neo Performance Materials (NEO.TO) and Germany's Vacuumschmelze are also discussing similar plans, people familiar with the matter said. The two companies did not offer comment when reached by Reuters.
"The controls on strategic minerals (by China) continues to escalate, it comes as no surprise if rare earths are next," said Ramon Barua, CEO of Aclara Resources, which is developing a heavy rare earth project in Chile.
Aclara is looking to mine heavy rare earth metal, such as dysprosium, and is in talks with original equipment manufacturers (OEMs) for a premium pricing as part of a long-term offtake deal.
The previously unreported plans come as the miners seek to benefit from the Group of Seven (G7) countries' move to incentivize miners and automakers to produce and procure critical metals domestically or from friendly nations.
In exchange, these miners expect end users to pay a premium.
They argue that geopolitical tensions between the West and China risk the reliable supply of rare earth minerals. If China persists with export restrictions, as it has with commodities like as germanium and graphite, supply could be further compromised.
Rare earths, a group of 17 elements used in various products including EVs, wind turbines, and consumer electronics due to their magnetic and electronic properties, garnered renewed attention after Beijing last month announced export permit requirements for some graphite products from December to protect national security, citing national security concerns.
For instance, the current price of neodymium, used to make the most powerful magnet in the world, varies between $73 to $520 per kg and companies say ex-China prices could be 30% more than the current quoted price.
Aclara's Barua said that Western supply of rare earth elements will not develop if it depends on Chinese prices.
"The West will be able to supply environmentally responsible and traceable rare earths, but the cost structure is different to the Chinese and hence it comes at a premium," he said, adding that the additional cost to OEMs by sourcing rare earths from Western companies would be negligible.
IRA LEVERAGE
The miners believe manufacturers will absorb extra costs due to new environmental, social and governance-related legislation and tax incentives like the U.S. Inflation Reduction Act and argue that a premium price is warranted for reliable and sustainably sourced rare earths that are key to the transition to cleaner energy.
For any OEM, the quandary of differential pricing is about being able to judge a quantifiable value that paying higher price brings.
"What we as OEMs want is a global level playing field, and that means having a transparent, sustainable and reliable pricing," Badrinath Veluri, chief specialist at Grundfos, an OEM based out of Denmark that manufactures water pumps that use rare earth magnets.
Veluri added that if any supplier is claiming that they bring value by charging higher prices, he wants to see the specific merits of that claim.
"The price of any metal (rare earth or otherwise) that is coming from China or from western countries has the same pricing, so why should rare earth pricing be different?" Veluri asked.
The discussion on pricing has come up often in the Rare Earth Industry Association, said Veluri, who is also the president of the global organization with partners representing the whole rare earth value chain.
U.S.-based MP Materials (MP.N) and Australia's Lynas (LYC.AX), the world's two biggest rare earths companies outside of China, were not immediately available for comment.
Developing rare earth mining projects can take decades, and investor risk aversion has derailed the viability of some projects outside of China. While Vietnam, Malaysia, and Myanmar offer alternatives to China, their final production remains distant.
Companies have suggested pricing alternatives such as selling rare earth concentrates at their cost of production plus capital cost, ensuring mines remain profitable. Another option is to cap prices at those offered by Chinese rare earth makers, protecting OEMs from drastic price fluctuations.
The other option is taking into account the price offered by Chinese rare earth makers and putting a ceiling to it, so even if there is a 100% jump in rare earth prices, OEMs do not end up paying for those fluctuation.
These mechanisms could boost the cost of an EV, which uses rare earth magnets in its motor, by at least 30% to 50%, said an rare earth industry official who was not authorized to talk to the media.
"Everything ultimately is about trade off," said Tim Harrison, managing director of Ionic Rare Earths. "If you want a product tied to sustainability metrics, minimizing carbon footprints etc, then obviously that is being delivered with cost and that needs to be reflected in the price that supply chain is prepared to pay," Harrison added.
"The OEMs probably won't pay a higher price for stuff that they buy in high volumes, such as lithium," said Flavio Volpe, president of Automotive Parts Manufacturers Association, the lobby group that represents Canada's OEM producers of parts and equipment.
"But for things like cobalt, copper, or rare earth metals there is a good strategic play to find with a mining partner." Volpe added.
