Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
What alchemy lies behind producers of rare earth elements? The thimble-sized universe of listed companies — dominated by MP Materials and Lynas — has gained about $17bn in market value this year to reach $24bn. That’s pretty impressive given they operate in a market with an annual turnover of $6.5bn, according to Goldman Sachs, and which is dominated by Chinese players.
Rare earths, like the broader universe of critical minerals, got a justified price boost after Washington stepped into the market. The US government, fretting over China’s 70 per cent share of mining and 90-plus per cent share of refining, took a minority stake in MP Materials in July. Private money quickly followed: Apple pledged to buy $500mn worth of magnets just days later.
More importantly, the Trump administration set a floor price of $110 per kilogramme for the Neodymium-praseodymium oxide, used in magnets for defence and electronic applications, that the country buys from MP Materials. That offtake price represented almost double the then-prevailing spot rate and the price MP Materials realised in the second quarter.
That intervention makes a big difference. Globally, NdPr production weighs in at about 92,000 tonnes, based on industry estimates. Assume, generously, that all NdPr is sold at $110 per kg. That would value the market at more than $10bn — or $3.5bn more than the entire turnover of the rare earths market before Washington stepped in.
Higher prices, even of the man-made variety, will allow rare earth producers to increase capacity outside China. And as the US and other miners up their game, efficiencies and technology will lift profitability. Berenberg reckons London-listed Rainbow Rare Earths, at present generating neither profit nor revenue, will have an ebitda margin of about 70 per cent once its South African project is up and running.
Yet there is a definite whiff of euphoria. Bubbles have floated above the periodic table before. Look at cobalt, a far larger market than that of all 17 rare earths put together, which rallied up through early 2022 before going into reverse. Lithium, a market that is double that of these coveted elements, has also soared and sunk.
Will rare earths go the same way? Governments can afford to subsidise prices to encourage western producers to build more mines and smelters. But the resultant rush could result in abundance, which from a politician’s perspective might actually be the point. It will take a decade or so, but so-called rare earths could become anything but. The real alchemy might be to turn investors’ bets on these critical minerals into the equivalent of fool’s gold.
