Innovation and fresh approaches will be key to the further diversification of rare earth supply chains in parts of Asia-Pacific outside of China, with companies exploring new ways to collaborate and Vietnam potentially set to play a bigger role.
Rare earths are not rare in the earth's crust, but high capital expenditure (capex) costs and environmental concerns have long acted as a deterrent to their extraction outside of China. But growing demand for rare earth permanent magnets — crucial to achieving global electric vehicle and offshore wind power targets — is encouraging more companies to get involved in this space, keen also to wrest some control away from China because of geopolitical tensions. Rare earths are increasingly hitting the headlines as a result of their role in decarbonisation, but no one should lose sight of their numerous other applications, some of which are military.
The road ahead is far from simple and many companies with rare earth resources in the ground are currently figuring out how best to proceed. Companies are mapping out the economic viability of different routes to market and, in some cases, taking a punt on how technologies will advance over the coming decade. Rare earth projects usually take many years to develop so it is reasonable to expect that new extraction methods may become available within a workable timeframe.
This year's higher price environment has strengthened the appeal of extracting rare earths, although it is a risky incentive. Underlying supply-demand fundamentals suggest that prices for most rare earths are likely to remain strong in the coming years, but this market has become increasingly volatile and China will have a lot of sway for years to come. This year alone, the Argus fob China price assessment for neodymium-praseodymium (NdPr) oxide has swung between a high of $176,250/t in March and a low of $84,250/t in September. By comparison, in 2019 — before the Covid-19 pandemic — NdPr oxide prices wavered in a range of $40,000-52,600/t fob China.
As more Asia-Pacific companies outside of China look towards rare earths, there is a concerted effort to manage risk and limit exposure to high capex and operational expenditure, and this is encouraging fresh approaches. For example, Perth-based Iluka Resources is building Australia's first fully integrated rare earths refinery for both light and heavy rare earth oxides, anticipating that the plant will be used to process Iluka's own rare earth output and potentially that of other producers in Australia.
Southeast Asia is also undergoing developments. Malaysia — home to Australian integrated producer Lynas' operations — has long been recognised as a major rare earths hub. But nearby Vietnam is increasingly seen as bridge in emerging Asia-Pacific supply chains. Japan has been strengthening its relationship with Vietnam on rare earths for several years and new tie-ups are being established. Australian Strategic Minerals (ASM) signed an agreement in December with South Korea's North Chungcheong province and Vietnam Rare Earth (VTRE), under which VTRE will develop its mines to ensure supply of around $50mn worth of rare earth oxides to ASM's subsidiary Korean Strategic Materials and Metals over five years, starting from 2023.
Major South Korean manufacturers are also getting more closely involved, with automaker Hyundai Motor in November signing a binding offtake agreement with Perth-based Arafura Resources for the supply of NdPr from its Nolans project in western Australia's Northern Territory.
Recycling is playing a part in rare earth supply chains, with market participants telling Argus that they are looking to expand efforts to extract rare earths from spent magnets. But it will take time for this part of the supply chain to scale up and, in the near term, total volumes are not likely to be high enough to move the dial significantly.
As more companies get involved in rare earths, it is assumed that some plans may not come to fruition. Rare earth projects are notoriously difficult to develop outside of China and a long history of scuppered attempts has taught market participants to watch developments with scepticism. Furthermore, midstream processing and magnet manufacturing are notoriously difficult to establish and no one should be surprised if some of the new supply that is developed outside of China ultimately makes its way to China for those stages in the chain.
The world is clearly going to need a lot more rare earths in the years to come and governments around the world are gradually coming to understand the major risks — logistical and geopolitical — that come from being so reliant on China for these products. It will take a lot of creativity and resilience to build out new Asia-Pacific supply chains, but momentum is building and maybe the time is finally coming to bring about real progress.
