In the summer of 2011, motor and magnet manufacturers found themselves in the formerly unheard-of position of not getting a firm price until delivery or having to pay for their order up front. The primary market characteristic was instability. Six months later, things have moderated. The price of neodymium has fallen by almost half from its peak, though the material remains significantly more expensive than it was a few years ago. Dysprosium has dropped in price, as well, but it remains expensive.
As we reported at the time, a common opinion during the cost hikes was that they were triggered by reductions in Chinese export quotas. Now analysis suggests that the issue was not a real contraction in supply, but a speculation bubble created by hoarding.
Though Chinese export quotas for rare earth elements dropped appreciably starting in 2008, quantities shipped per year have never exceeded those quotas.
(Source: Technology Metals Research LLC)
“There's a lot of misunderstanding about the export quotas,” says Gareth Hatch, founding principal of Technology Metals Research LLC. “Certainly, in 2010, which is when we saw the first price increases in the raw materials, there was a drop in the export quota numbers of about 40 percent compared to the prior year. The reality is that we've never actually gotten close to those limits. Of the materials that could have been exported last year -- roughly 30,000 tons -- it appears that less than half was actually exported.”
When demand for rare earth materials softened last fall in response to price hikes, speculators began releasing the materials they held, and prices went down.
New sources of neodymium, such as Molycorp.'s Mountain Pass mine, are expected to come online this year, though new supplies of dysprosium will probably be delayed until 2016 or 2017. That's the good news. The bad news is that, from early 2010 to last summer, the price of materials like neodymium rose by more than a factor of five. A 50 percent reduction is helpful but won't erase that major price bump. Though prices will very likely continue to decrease somewhat, they're unlikely to return to pre-bubble levels.