REE<\/span> share price bubble burst as a result, or at the very least a lot of air rushed out as blind faith was exposed.<\/p>\n\n\tThe difficulty is that the market for REEs<\/span> is not a “free” one. High global demand for REEs<\/span> is a recent phenomenon driven by technological advances bringing us everything from iPhones to electric cars and wind turbines in what seems a very short space of time. Getting an REE<\/span> mine and processing facility up to speed is very costly and time consuming and the West has lagged well behind in REE<\/span> development despite REE<\/span> resources being spread around the globe. China has not lagged however, currently producing 95% of the world's REE<\/span> concentrates from only 36% of the world's known resources. The Chinese did not foresee the iPhone or “green” technologies, they were just happy to sell REEs<\/span> to Japan for televisions and so forth and the rest of the world was happy to let them.<\/p>\n\n\tLynas<\/span> is one of only two global miners (Molycorp<\/span>) even close to first commercial production of highly sought after REEs<\/span>, particularly the more scarce heavy REEs<\/span>, beyond the limited amounts currently being produced outside China. The field is well behind. China thus has a window of opportunity to exploit its near-monopoly and its not going to muck around. Beijing has duly imposed quotas on the export of Chinese REEs<\/span> to ensure prices outside of China remain elevated well beyond domestic prices while at the same time clamping down on unlicensed or environmentally poor domestic operations. It would seem that for some time yet REE<\/span> prices will be supported at significant levels, if not earlier peak levels.<\/p>\n\n\tOr will they? Goldman Sachs is not so sure.<\/p>\n
\n\tGoldman Sachs Australia does not attempt price forecasting for the entire range of REE<\/span> and associated elements. With Lynas<\/span> and Alkane<\/span> Resources ((ALK<\/span>)) the only two local REE<\/span> stocks under coverage the analysts forecast basket prices for each based on the make-up and spread of those companies' resources. Goldmans<\/span> has now reduced its basket price forecasts by 17% for 2012 and 24% for 2013 not only as a result of price falls over the past three months but also on an assumption that global REE<\/span> supply will not have ended in deficit last year as widely expected but actually in a notional surplus, with 2012 to show a moderate deficit.<\/p>\n\n\tREE<\/span> prices have been falling in recent months to degrees determined by relative abundance and substitutability, Goldmans<\/span> notes. Light REEs<\/span> lanthanum and cerium are the most abundant of the group and their prices remain in steep decline. Light but less abundant and less substitutable praseodymium and neodymium have seen shallower price falls while the scarcer heavy REEs<\/span> such as dysprosium, europium and terbium have seen sharp declines but not by as much as the light REEs<\/span>. Dysprosium (ex-China) is down 50% from its July peak, for example, while cerium is down 73%, Goldmans<\/span> notes.<\/p>\n\n\tAs aforementioned, soaring REE<\/span> prices ultimately led consumers to rethink their consumption however possible, thus triggering price turnarounds. Goldmans<\/span> cites the example Japanese company Showa<\/span> Denko's<\/span> consumption of cerium oxide, which is used as a high level polishing agent for display screens. Price rises have meant that the amount of cerium oxide consumed by the company in 2010 has been halved in 2011 by working with lower quantities and re-using the material up to five times. It's this sort of response which has Goldmans<\/span> reassessing assumed demand levels ahead.<\/p>\n\n\tGoldmans<\/span> also questions the effectiveness of Beijing's export quotas and clamp-down on unlicensed producers. Discrepancies between export amounts suggested by export quotas and amounts actually arriving at destinations outside China imply both unauthorized export and unauthorized production in the first place. It thus becomes potentially dangerous for stock analysts to assume quota-based supply-side numbers in their price forecasting.<\/p>\n\n\tThere is also a small matter of the World Trade Organization, of which China is a member. The WTO last month rejected Beijing's appeal on a ruling against Chinese quotas on everything from bauxite to zinc. There has been no specific mention of REEs<\/span>, but one presumes a precedent would apply and Beijing would be forced to modify its tight quotas anyway.<\/p>\n\n\tAll of the above suggests to Goldman Sachs that REE<\/span> prices are subject to further downside rather than upside as domestic Chinese and ex-China prices begin to converge. That is not to say REE<\/span> prices will fall back to levels of three years ago when demand was minimal, but investors need be wary that a return to exponentially rising price curves is unlikely.<\/p>\n\n\tSuch a conclusion makes sense, except that Tim Miller of Canadian research house Fraser Mackenzie, having read the Goldmans<\/span> report, suggests “We believe [the] Goldman analyst does not know what he is talking about”.<\/p>\n\n\tMiller concurs with Goldmans' expectations of further price falls for light REEs<\/span> such as lanthanum and cerium but believes prices for heavier neodymium, yttrium, terbium and dysprosium “will be going up significantly”. The CEO of Newmont<\/span> Mining agrees.<\/p>\n\n\tAside from the heavy REEs<\/span> being subject to only 15% quota control in China, the floods in Thailand last year caused significant disruption to the global hard disc<\/span> drive (HDD) industry, notes Miller. HDD inventories have subsequently been drawn down to “unsustainably<\/span><\/span> thin” levels and there is much pent up demand. The March and June quarters of this year will see an aggressive rebuild of inventories, Miller believes. Catch-up demand for HDDs<\/span> is such that US-listed manufacturers Western Digital Corp and Seagate Technology both issued significantly increased revenue guidance in the current US reporting season which had analysts scrambling to make major share price target increases. Both companies buy magnetic powders from Newmont<\/span> which are produced from REEs<\/span>. That aside, Miller notes REE<\/span> demand in general is rising and will continue to rise due to the increasing global use of smart phones and tablets as well as auto and clean-tech applications.<\/p>\n\n\tReturning to Lynas<\/span>, the FNArena<\/span> database shows four brokers covering the stock and all have maintained Buy or equivalent ratings post the LAMP announcement. The consensus price target sits at $2.01 on a range from $1.75 to $2.15. One database broker – RBS<\/span> – covers Alkane<\/span> and currently has a Buy on the stock with a target of $1.92.<\/p>\n\n\tFNArena<\/span> has also been following the fortunes of local explorer\/developer Hastings Rare Metals ((HAS)) (see linked articles). Hastings has today released a stock analysis report from RM<\/span> Research which bears the subtitle “It's a steal”. RM<\/span> Research has initiated coverage with a Speculative Buy rating.<\/p>\n\n\t
\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"In the wake of initial processing approval for Lynas, analysts are in disagreement as to whether rare earth prices have seen their peak or not.<\/p>\n","protected":false},"author":8,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6],"tags":[23],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59458"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=59458"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59458\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=59458"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=59458"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=59458"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}