A handful of Canadian, German and Australian mining exploration companies plan to charge a higher price for key metals used in electric vehicles. They promise quality and consistency in exchange for less dependence on China, the dominant producer and price setter.
China controls 95% of the production and supply of rare earth metals, which are essential for the production of magnets for electric vehicles (EVs) and wind farms, and this monopoly has allowed China to dictate prices and sow unrest among end users through of export controls.
Now mining companies such as TSX-listed Aclara Resources and Australia’s Ionic Rare Earths are discussing plans to loosen China’s grip on the critical minerals market and move to market-based pricing, company officials told Reuters.
Canadian miner Neo Performance Materials and Germany’s Vacuumschmelze are also discussing similar plans, people familiar with the matter said. The two companies did not comment when reached by Reuters.
“The control of strategic minerals (by China) continues to escalate, it will not come as a surprise if rare earths are next,” said Ramon Barua, CEO of Aclara Resources, which is developing a heavy rare earths project in Chile.
Aclara wants to mine heavy rare earth metals, such as dysprosium, and is in talks with original equipment manufacturers (OEMs) for a higher price as part of a long-term offtake agreement.
The previously unreported plans come as miners seek to take advantage of a move by the Group of Seven (G7) countries to incentivize miners and carmakers to produce and buy critical metals domestically or from friendly countries.
In return, these miners expect end users to pay a premium.
They argue that geopolitical tensions between the West and China are endangering the reliable supply of rare earths. If China continues with export restrictions, as it has done with raw materials such as germanium and graphite, supplies could be further jeopardized.
Rare earth metals, a group of 17 elements used for their magnetic and electronic properties in a variety of products including electric vehicles, wind turbines and consumer electronics, came into renewed focus after Beijing last month announced national security export licensing requirements for some graphite products from December.
For example, the current price of neodymium, used to make the world’s most powerful magnet, ranges from $73 to $520 per kg and companies say ex-China prices could be 30% higher than current prices.
Aclara’s Barua said the Western supply of rare earth elements will not develop if it is dependent on Chinese prices.
“The West will be able to supply environmentally responsible and traceable rare earths, but the cost structure is different from the Chinese and therefore comes at a premium,” he said.
IRA LEVERAGE
Miners believe manufacturers will absorb additional costs due to new environmental, social and governance-related legislation and tax incentives such as the US Inflation Reduction Act and argue that a higher price is justified for reliable and sustainably sourced rare earths, which are essential to the transition towards cleaner energy.
For any OEM, differential pricing is about being able to assess a quantifiable value that comes with paying a higher price.
“What we as OEMs want is a global level playing field, and that means transparent, sustainable and reliable pricing,” said Badrinath Veluri, chief specialist at Grundfos, a Denmark-based OEM that produces water pumps that use rare earth magnets.
Veluri added that if a supplier claims it is adding value by charging higher prices, it wants to see the specific merits of that claim.
“The price of any metal (rare earth or other) coming from China or from Western countries is the same, so why should the price of rare earth metals be different?” Veluri asked.
The price discussion has come up often in the Rare Earth Industry Association, said Veluri, who is also chairman of the global organization with partners representing the entire rare earth value chain. U.S. MP Materials and Australia’s Lynas, the world’s two largest rare earth companies outside China, were not immediately available for comment.
Developing rare earth mining projects can take decades and risk-averse behavior by investors has derailed the viability of some projects outside China. Although Vietnam, Malaysia and Myanmar offer alternatives to China, their final production remains remote.
Companies have proposed pricing alternatives, such as selling rare earth concentrates at half the cost of production plus capital costs, so the mines remain profitable. Another option is to cap prices at the level of Chinese rare earth producers, protecting OEMs from drastic price fluctuations.
The other option is to take into account the price offered by Chinese rare earth manufacturers and set an upper limit so that OEMs do not have to pay for these fluctuations even with a 100% price jump.
These mechanisms could increase the cost of an EV, which uses rare earth magnets in the motor, by at least 30% to 50%.
“At the end of the day, it’s all about the tradeoff,” says Tim Harrison, director of Ionic Rare Earths. “If you want a product that is linked to sustainability criteria, minimizing carbon footprint and so on, then of course that comes with a cost and that has to be reflected in the price that the supply chain is willing to pay,” Harrison added.
“The OEMs are unlikely to pay a higher price for things they buy in large volumes, like lithium,” said Flavio Volpe, president of the Automotive Parts Manufacturers Association, the lobby group representing Canadian OEM parts and equipment makers.
“But for things like cobalt, copper or rare earths, there is a good strategic play to be had with a mining partner.” Volpe added.
Tags: Western miners higher rare earth prices break Chinas grip November
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