China's Monopoly on Rare Earth Market in Decline
ResearchChina will lose its monopoly position on the rare-earth market by the end of this decade. New suppliers will enter the market and weaken China's market power. The current Chinese mark-up on global rare-earth prices will practically disappear. The world-market price for light rare earths will drop substantially in the coming three years; with regard to heavy rare earths, China will be able to maintain its monopoly position until the end of the decade. These are the findings of a study conducted by the Centre for European Economic Research (ZEW) on the basis of METRO, a newly developed model of the metal market.
Of the 110,000 tonnes mined per year, about 90 per cent of rare-earth elements are obtained by China. China has the power to restrict rare-earth exports, thereby increasing world-market prices significantly. For companies it is very difficult to replace rare earths by alternative raw materials. Moreover, global demand is increasing, since rare-earth elements are in particular utilised in key technologies and high-tech.
In the coming years, however, new providers like the US, Australia and Canada will emerge on the market for light rare earths, the more plentiful rare-earth metals. Based on the METRO model of the metal market, the ZEW study suggests that up to 140,000 tonnes of rare earths could be mined annually outside China by 2020. This amount would equal about 50 per cent of the global output expected for that time. But putting a rare-earths mine into operation takes ten to 15 years. For this reason, the reduction of China’s monopoly position is to be considered a long-term process. Moreover, the mines that are currently being explored contain only relatively small quantities of heavy rare earths. Consequently, China will be able to maintain its monopoly power in this area longer than on the market for light rare earths.
On the way of becoming less dependent on Chinese raw materials, a lot of hope is placed in the recycling of rare earths. Additional supplies of recycled rare earths could help to curb China’s market power. However, it is crucial that the recycling technologies reach market maturity while only few mines are operative. Because in the long run, rare-earth recycling has to be able to compete with the mining industry, even when prices drop due to extended production capacities.
An element of uncertainty in the ZEW study is technological progress. Demand for rare earths is heavily driven by technological progress, making future demand hard to predict. Because of the massive price increases in recent years, several buyers have already begun seeking for alternative raw materials. If such alternatives are found, demand will decline and rare-earth prices will decrease.
The ZEW study is based on METRO, a model of the metal market recently developed by the ZEW Research Department "Environmental and Resource Economics, Environmental Management". It simulates the physical life cycle of metals, from their deposits to disposal or recycling. METRO is the first model of the metal market that factors in endogenous capacity expansions.
For further information please contact
Frank Pothen, Phone +49/621/1235-368, E-mail pothen@zew.de