Eoin Treacy's view

Here is a link to the full report and here is a section from it

As the largest producer of EVs (and the economy most dependent upon what is still a niche activity in the West) China is also the most dependent upon REE magnets that are used in the motors. In 2018, the global production of new energy vehicles exceeded two million units, of which 1.27 million units were produced in China (up by about 60% YOY). Beyond the motors there are also battery applications particularly for hybrids (HEVs) with Rare Earth hydrogen storage alloys are mainly used in NiMH power batteries. 

A hybrid electric vehicle needs about 10 kg of hydrogen storage alloy. A hydrogen storage alloy may contain 30% mischmetal, which means that a HEV consumes about 3 kg of rare earth. The drive motor of a HEV consumes about 1 kg to 3 kg of neodymium-iron-boron magnetic materials while the drive motor of an EV consumes about 5 kg to 10 kg.

The strategy of the Chinese government is that the annual production of new energy vehicles in China will reach six million units in 2023. If this goal is achieved then new energy vehicles will consume 30,000 tons of REEs, thus exacerbating the shortage of REEs within China and its import requirement.

China to Net Importer?

Ostensibly to “regulate” REE mining the Chinese government, in the second half of 2018, began to shut down illegal mining enterprises and cut the REE production quota to 45,000 tons, down 36% from 70,000 tons in the first half of the year. Again, ostensibly, to keep more of the value-added, China shifted from exporting crude ores to exporting oxide products.

As a result of China Minmetals Rare Earth (Ganzhou) Co., Ltd. and CHALCO Guangxi Branch ceasing to produced ionic Rare Earth ores in Southern China, because they failed to meet environmental standards, these products fell into shortage.

China has overplayed its hand in the rare earth metals sector. Two years ago, it produced 80% of the worlds supply, now it produces 70%. The global economy is now alert to the fact that these metals represent vital components in all manner of new technology products.

The main point about rare earth metals is they are not especially rare. The biggest problem is with refining them. As the about turn in Malaysia’s attitude to Lynas demonstrates the reluctance to refine rare metals is more politically oriented than about particular technological difficulty.

There is a risk that with slowing domestic production and rising domestic demand China is going to lose pricing power over of these resources. That represents a significant risk for their economy considering the plans underway to boost the production of battery vehicles. Doing everything to reduce dependence on oil imports is more of a national security priority for China than rare earth metals so it remains highly likely China will persist in its efforts to migrate to a battery driven transportation sector.

That represents a bullish argument for the global rare earth metals sector and the recovery argument remains the base case.