* China loses WTO case over export controls
* Molycorp, Lynas to ramp up output from new mines
* Price spike in 2010 spurred consumers to find substitutes
By Eric Onstad
LONDON, March 26 Rare earth elements will drop
further in value this year as new mines boost output and after
China lost a trade dispute over its export controls, while
demand in high-tech products disappoints.
Prices of the 17 elements used in technologies such as
smartphones and electric cars have mostly been stuck in tight
ranges after skyrocketing and then tumbling in 2010-2011.
A few rare earths attempted a rally late last year, but
remain well below the spike three years ago after China clamped
down on exports.
The world's second-biggest economy, which not only produces
90 percent of global rare earths but is the largest consumer,
lost a dispute at the World Trade Organization on Wednesday.
A consultant said a price war could break out after the
United States, European Union and Japan won their case over
export restrictions they said gave Chinese companies an unfair
competitive edge in key high-tech sectors.
"If the recent WTO ruling leads to a softening of China's
rare earth industry policy measures, the nation's only tangible
defence becomes competing head-to-head on price with emerging
global producers," said Ryan Castilloux, founding director at
Adamas Intelligence in Sudbury, Ontario.
Investors are already worried about excess supply as U.S.
mining group Molycorp Inc and Australia's Lynas Corp
boost output at their new mines.
"We still remain concerned about the likely downward
pressure on rare earth pricing if Molycorp achieves its
production guidance by the fourth quarter of this year," analyst
Michael Gambardella at JPMorgan said.
"We continue to believe that all rare earth prices will move
meaningfully lower as Molycorp and Lynas ramp to just their full
Phase 1 capacities," he said in a note.
Molycorp aims to boost output to 20,000 tonnes a year, after
producing about 1,000 tonnes of rare earth oxides in the fourth
"If we start seeing new mines being constructed outside of
China and demand does not grow to absorb this new production,
then China may see its REE (rare earth element) industry, at
least the upstream end of it, under threat, leading it to
undercut competitors on price," Castilloux said.
China has been struggling to control illegal mining and
smuggling in its rare earth industry despite a two-year campaign
to consolidate output in the hands of big state-owned miners.
SOME PROJECTS NOT VIABLE
Praseodymium AM-CNF-PROXD - used in aircraft engines as
well as magnets for electric vehicles and wind turbines -
rocketed more than 12-fold from $19.75 a kg in January 2010 to a
peak of $250 in August 2011.
It slid to $74.50 early last year after speculators
liquidated positions and has bounced back to $122.50 as
consumers ran out of stocks, but Gambardella expects it to head
back down to $55 by next year.
The additional mine output is expected to pressure "light"
rare earths such as praseodymium, more than their "heavy"
cousins, which are more scarce.
Other rare earth projects in the pipeline, however, may not
be viable at current low prices, said analyst Luisa Moreno at
Euro Pacific Canada. "It is going to be difficult for companies
to all start production within the next six years," she said.
"It is very difficult for mining companies to get funds and
for rare earths companies particularly after the fall in rare
The sizzling rally three years ago left damage in the market
as many consumers took fright at the soaring prices and found
Some bullish investors had hoped for a surge in demand for
rare earths used to make powerful magnets for electric cars, but
Castilloux said some vehicle makers were shunning rare earths
to cut costs and avoid supply risk.
Luxury vehicle maker BMW's Mini E electric car and
electric car manufacturer Tesla Motor's Roadster are
powered by induction motors that do not use magnets made with
rare earths, he said.
"Demand is quite modest actually, not bad, but quite
modest," said Charles Swindon, managing director of RJH Trading
in London. "The market is still somewhat precariously balanced
between supply, demand and sentiment."
(Additional reporting by Harpreet Bhal; Editing by Veronica
Brown and Dale Hudson)