Low rare earth prices squeezing profitability in China
The directed overproduction of 2022 and additional increases in 2023 and 2024 have not only sent prices crashing lower, they have also squeezed the profitability of China’s major rare earth producers to near-zero levels,
Marginal mandates
Rare earth prices have been on a rollercoaster ride since 2020.
From an average of just $40/kg in Q1 2020, the price of NdPr oxide in China rocketed to an average of $140/kg in Q1 2022, markedly improving the profitability of China’s major light rare earth producers (and global price setters) from an industry average profit margin of 2% to 20%.
But it was not meant to be. In 2022, China issued a 25% increase in production quotas to producers in the nation via its first two directives.
As production increased, NdPr oxide prices quickly reversed course, falling from an average of $140/kg in Q1 2022 to $94/kg in Q1 2023 to $52/kg in Q1 2024 and have since increased just marginally overall.
Throwing the baby out with the bath water
The directed overproduction of 2022 and additional increases in 2023 and 2024 have not only sent prices crashing lower, they have also squeezed the profitability of China’s major rare earth producers to near-zero levels – profitability that would otherwise be deeply negative at current prices were it not for the subsidies, supports and rebates received.
For China’s leading heavy rare earth producers, many of which have become highly reliant on processing imported feedstock from Myanmar, Laos and elsewhere, the decline in dysprosium and terbium prices following the peak in 2022 has pushed profitability into negative territory. From an average of 7.0% in 2022, the profit margin of major heavy rare earth producers in China averaged -2.5% through the first three quarters of 2024.
For China’s leading NdFeB magnet makers, profitability has followed a similar trend, falling from an average of around 10% in mid-2022 to an average of around 3% through the first three quarters of 2024 – hampered by oversupply, weak EV-related demand and fierce competition among magnet makers in the country.
In the face of China’s ambitions to dominate downstream markets for EVs, robotics, artificial intelligence, and all components thereof (i.e., Made in China 2025), and taking heed of the nation’s willingness to bleed upstream to achieve its downstream ambitions (e.g., lithium), it’s arguable if not logical to assume that China has deliberately led rare earth and magnet prices to a level where it feels few other than its own highly subsidized producers can exist.
Leveling the playing field
Helping to level the playing field, the Trump 2.0 administration has imposed a 10% tariff on imports of “all articles” from China as of February 4, 2025. For permanent magnets, including NdFeB and SmCo varieties, this amounts to a 10% increase on top of the existing 2.1%, offering some tangible upside for the nation’s emerging and existing producers.
Moreover, under Biden the US had already committed to increasing tariffs on imports of China-made permanent magnets to 25% from January 1, 2026, which under Trump 2.0 could come into force on top of today’s 12.1% putting a gust of wind in the sails of existing and emerging magnet makers outside of China.
Can China’s producers sustain the pain?
Beijing’s apparent practice of encouraging overproduction to suppress raw material prices has not been restricted to rare earths alone. Critical battery metals including lithium, nickel and cobalt have followed a similar course over the last five years.
This strategy has given a leg up to China-based EV, robotics, eVTOL and component manufacturers via a deluge of cheap raw materials.
The reality is, however, that in the case of rare earths, China has become increasingly reliant on foreign sources of feedstock in recent years and its undermining of rare earth prices since 2022 has weighed heavily on the profitability of those supply sources as well.
Without a near-term improvement in prices, the incentive for foreign feedstock suppliers to keep shipping into China, some at a financial loss, is diminished and the sustainability of those supply chain linkages at risk.
Moreover, the subsidies that China provides to its producers and the marginal prices it maintains effectively mean that the nation is also subsidizing global end-users. With NdFeB magnet demand forecasted to triple from current levels by 2040, indefinitely bankrolling marginal to loss-making producers will become an increasingly large expense for the nation and is ultimately not sustainable.
Low prices to force more Chinese mining in near-term
If current rare earth prices are sustained and delay project development outside of China, Chinese miners will need to accelerate production growth and thereby accelerate depletion of the nation’s resource base in the process. With China home to around 30 years of known light REE-rich reserves at current rates of extraction growth, pervasively low prices (i.e., so-called cabbage prices in China) will accelerate the draw down of its assets. By China’s forward-looking nature, this is undoubtedly a concern already today.
In recent weeks, the China Geological Survey announced discovery of a large HREE-rich deposit in Yunnan province, which can help extend the life of the nation’s dwindling HREE-reserves and offer a domestic alternative to China’s growing reliance on coup-stricken Myanmar for HREE-feedstocks.
The discovery, which is the largest in China since 1969, will allegedly be mined under more stringent environmental standards that Beijing has enacted in recent years – standards that could offer additional support for higher HREE prices in the years ahead.
What does it all mean for non-China producers?
While China is host to the world’s largest REE reserves base, the nation is also depleting those reserves at the fastest rate globally, leaving it with just decades of runway should it continue to suppress prices and lead global production growth.
By the end of the next decade, global mine production will need to triple to support magnet demand growth. Coupling this outlook with a growing Western emphasis on diversifying supplies, incentivizing mine-to-magnet supply chain development, and efforts to minimize reliance on China will lead to a gradual loosening of China’s grip on the market in our view.
In the near-term, we expect that Western governments and associated coalitions will progressively seek to match Beijing’s subsidies and supports, leveling the playing field for emerging alternatives. The newly enacted import tariffs in the US are a step in that direction albeit the continued reliance on China to dictate underlying prices is problematic if not simply impractical.
Tracking industry profitability
As of this month, clients can track the profitability of China’s major producers through our EV Motor Materials Monthly intelligence service.
Follow the pinch and swell of profits to help anticipate associated movements in prices.
The EV Motor Materials Monthly is a must-have intelligence service for automakers, motor makers, magnet manufacturers, miners, explorers, investors, and other stakeholders with a professional interest in the EV, motor or motor materials industries.
Contact Adamas Intelligence for more information.
