As you are surely aware, 2023 was not a particularly good year for the returns of many commodities. This also applies to rare earths. After prices for most of these essential metals reached their highest level in a decade in 2022, there was a significant correction downwards last year.

Why rare earths depreciated so strongly in 2023 The reasons for this include the weakened economic development in China compared to the pre-Covid period, as well as the massively increased production, also in China. Background: The People’s Republic is by far the largest consumer of rare earths and downstream products. At the same time, China is the world leader in the production of rare earth ores, processing, refining, and last but not least, the production of so-called permanent magnets.

The struggling demand combined with the oversupply caused prices for praseodymium oxide, according to data from Shanghai Metals Market (SMM), to fall by -34% in 2023. Praseodymium is one of the most commonly used rare earths. It is used in combination with other rare earths (especially neodymium) to produce permanent magnets. Prices for neodymium-praseodymium oxide (NdPr) fell by -38% in the last year, according to SMM.

But why are such permanent magnets so important? In short, these are magnets that can generate a constant magnetic field without the need for electrical power and are therefore permanently effective regardless of external influences. High-performance permanent magnets are used, for example, in hard drives, electric motors, braking systems, valves, wind turbines, engines, and steering systems.

These permanent magnets are therefore crucial for computer technologies, energy transition technologies, and military products. Rare earths are therefore of significant strategic importance.

What can we expect in 2024? A possible price comeback? But what is interesting now is the outlook for 2024. In fact, this year could see a comeback in rare earth prices. Various analysts have recently pointed this out, according to a recent report by the Reuters news agency. According to estimates by investment firm Guolian Securities, the mixture of neodymium-praseodymium oxide, which is crucial for permanent magnets, is expected to have a global deficit of 800 tons in 2024. For comparison: In 2023, there was an oversupply of 6,600 tons.

And data provider CRU Group expects, according to Reuters, that the additional supply will be more or less depleted by the end of 2024. The experts attribute this to a recovering demand for rare earths. The expansion of wind power and the growth of electromobility on a global level are expected to be driving forces for prices.

Wind power and e-mobility back on track in 2024? The consulting firm Wood Mackenzie, for example, sees a significant recovery for the wind power industry in the current year after a difficult year in 2023. There are currently record order backlogs and unprecedented political momentum, with many governments pulling out all the stops to achieve their climate goals. Wood Mackenzie predicts significant growth in wind power for China, Europe, the Middle East, and Africa – both offshore and onshore.

The growth of electromobility could also provide further demand impulses for rare earths. According to the Global E-Mobility Forecast Report 2024 from Juice Technology, the sales of pure electric cars and hybrids are expected to increase more strongly in the current year and beyond – after also coming under pressure in 2022 and 2023 due to macroeconomic crises.

Juice Technology expects the share of electric cars in new registrations in Europe and the USA to increase to 50% by 2025 and even to 80% by 2030. The experts attribute their growth forecast, among other things, to the rising CO2 prices in many countries, the ambitious expansion of charging infrastructure, and, last but not least, to cheaper electric car models due to increasing competition and technological progress.

Background: Depending on the specification and size, up to 300 kilograms of rare earths (especially neodymium and dysprosium) are used in a wind turbine, and up to three kilograms in an electric car. The expansion of both energy transition technologies, therefore, depends on the availability of rare earths.

My conclusion for you: Which stocks are interesting now? In 2023, rare earths caused more headaches for investors. On the one hand, these elements are so crucial for the functioning of the modern world, but on the other hand, they have not been very profitable lately.

2024 could finally see a reversal in this trend – due to the growing expansion of energy transition technologies, the ongoing arms boom, and, last but not least, the likely less strong supply growth in China.

Speaking of China: In recent decades, the mega-country has built up a quasi-monopoly on rare earths. This gives Beijing an enormously powerful bargaining chip in the face of trade conflicts. The chart shows the share of China in global rare earth production (2021 data):

Source: Statista (https://de.statista.com/infografik/27806/weltweite-reserven-und-minenproduktion-von-seltenen-erden/)

This does not include the market shares of downstream processing, refining, and production of permanent magnets, where China accounts for more than 80%. It is, therefore, no wonder that many Western countries want to reduce their dependence gradually and are now promoting their own mining and, above all, refining capacities.

If you want to invest in this development, stocks like Lynas Rare Earths and MP Materials could be interesting for you. Both companies mine rare earths outside of China and also want to increase their refining capabilities, which is a highly complex process of separating rare earth concentrates into individual substances, on their own.

The post Rare Earths: Why 2024 could bring you better returns! appeared first on Investor Verlag.