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Rare earth prices continue to squeeze upwards

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Rare earth prices continue to squeeze upwards

Rare earth prices are expected to continue to rise over the next two years until new supply lines go live, with China continuing to have a stranglehold on these commodities.

The stringent quotas China has placed on exports as it stockpiles the valuable metals has prompted several leading global lighting companies to go public in their condemnation of its pricing policies.

Rare earth oxides are a critical component of fluorescent lighting systems and the recent shortage of these materials has had a direct and dramatic impact on phosphor availability and cost, with China controlling 97% of the world supply.

GE Lighting, part of General Electric, has pointed out that if rare earths were coffee, ‘a latte that cost €1.50 just a few months ago would now cost almost €16’.

Similarly, in a letter to the group’s distributors last week, Philips Lighting chief executive Ed Crawford explained the cost pressures the company is currently facing.

‘Phosphors are experiencing unprecedented shortages in global supply, resulting in price increases of over 300% in the past six months,’ he said.

More than half of the phosphor used in linear and compact fluorescent products is derived from rare earths and five of the 17 rare earth elements are used to create the white light. Although some of the elements are not actually that rare, what is rare is finding them in concentrations sufficient in size to make extracting them economically viable.

GE Lighting said while growing demand for consumer goods and the mushrooming of rare earth hungry uses – such as hybrid and electric cars and wind turbines – has been a factor, the main driver has been China.

The price rises of some of the elements have been staggering, with terbium and europium, both used in fluorescent lighting, up by around 1,000% over the past 12 months.

But China could to an extent be shooting itself in the foot in the longer term.

Japan, for example, has been diversifying its supply sources, with 62% of its rare earth imports from China in June, down from 79% in May. At the same time, it doubled imports from Vietnam.

Goldman Sachs said in May that it expects rare earth prices to peak in 2013 and move into surplus as new mines go live. Work is well under way on new mines in the US, Canada, Australia and Vietnam, along with old ones being reopened.

But prices are likely to remain volatile, high and trending even higher in the short term.

‘Could this “lost production” be replaced?’ GE Lighting asks. ‘In the short term no; in the medium term yes. For the foreseeable future though, the current situation will have a serious and detrimental impact on the availability and cost of rare earth materials.’

Investors may take a more positive view on this, however.  

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