At the beginning of this year China, which controls that vast majority of Neodymium production in the world, decided to centralize production. They put taxes on the product to pay for pollution controls (mining and refining can be a messy business) they also controlled exports in order to utilize the magnets for their own ends. This caused a quite a stir as prices skyrocketed and manufacturers of toys and other magnet using products found their materials costs rising rapidly. Many vendors informed us of price increases 2-3 times this year where in past years there may have been just one set of price changes. It also threatened the price of hybrid cars, which use at least a kilogram of Neodymium.
But a few months ago, we noted that the price of Neodymium leveled off. It hindsight it should have been fairly obvious – prices can’t increase 100% every month. We went on the assumption that the prices might drop a little bit but would likely remain high as domestic production of Neodymium ramped up and dropping prices might discourage such investments, and China had little reason to change its present policies.
However, there were other factors in Neodymium pricing at play. These factors have resulted in a bit of a price crash over the past month. While the price out of China remains high, it has come down quite a bit. But the Bloomberg Rare Earth Metals index has actually dropped below last year’s levels!
There are apparently several reasons for this crash. One is speculation – whenever a commodity rises fast in price there are inevitably economic speculators who jump into a buying spree and hold the product hoping to get as much re-sale out of it. This can be quite profitable, but if you join at the wrong time you can get caught in a crash or bursting bubble of prices. It seems that this happened to a lot of speculators when the demand dropped.
And why did the demand drop? Well, high prices discouraged a lot of casual use of high-power magnets, but Toyota was working on a rare-earth free induction motor in response to China’s 2010 restrictions. Other car companies plan to use such motors in their hybrids as well.
Prices are still high compared to the incredibly low prices of 2008-2009 when Chinese
production was at a high point and prices at a low point – this is the era when rare earth magnets started to be used in toys! But at least the era of rapidly skyrocketing prices of rare earth magnets would seem to be over for now.