Lisa Reisman describes herself as a "classic libertarian," but the managing editor of MetalMiner nonetheless believes government has a role to play in protecting and developing domestic supplies of critical metals. In this exclusive Critical Metals Report interview, Reisman argues for private/public partnerships and explains why today's low prices don't phase her – or surprise her.
The Critical Metals Report: Lisa, many of the companies in the rare earth elements (REE) space are trading near 52-week lows. Has the bubble burst or is this a consolidation?
Lisa Reisman: To some extent, the bubble has burst. But this is true for a number of commodities, not just REEs. The current lows are directly related to the same policy changes that caused the upswing in the first place. When China, the 800-pound gorilla in the sector, shifted to a policy limiting exports, buyers tended to hit the panic button and bought forward for a long period of time. Prices got a boost at the time, but those large buyers were then out of the market while they subsisted off their stockpiles. Thus, we would expect the stocks of the REE producers to fall a little bit.
TCMR: The MetalMiner IndX on MetalMiner.com tracks a number of markets, such as aluminum, raw steel, rare earths, precious metals, renewables, copper, automotive and construction. By far the worst performing index is REEs; it has lost almost half of its value. Why?
LR: There is an adage that goes "nothing kills high prices like high prices." When things begin to get frothy, people get nervous and sell. Investors use the opportunity to take some profit.
The REE prices got too frothy. This is a spot market; the published prices tell you what current demand looks like. And it is looking dour. The same is true for other metals. For most of them, the slope in the aggregated chart is down to the right.
Also, when people start to panic over export controls, they start to look for product substitutes and alternative materials. That cannot be done across the board or quickly in all cases, but where it can be done, it is done. This creates demand destruction. To some extent, that is what we are seeing in REEs.
TCMR: How much of a role does China's economic slowdown play in REEs' price weakness?
LR: It plays a significant role. Many of the large buyers, like the original equipment manufacturers (OEMs), have bought or are buying forward. Once the big companies are taken care of, who is left in the REE spot market? The companies that did not plan ahead, often smaller companies, are the only ones buying in the spot market right now.
TCMR: The U.S., the European Union and Japan are quietly fighting with China through the World Trade Organization (WTO) over China's export restrictions. What do you think is the likely outcome?
LR: I think the WTO will rule in favor of the Western nations by finding that some of the export restrictions, or perhaps the way China has implemented them, violate WTO rules. But China is holding fast and makes some valid points in its defense. The environmental factors, China asserts, are a legitimate rationale for export limitations.
TCMR: If that happens, will China change the way it does business?
LR: It might not be business as usual for China, but China will look for other levers to manipulate and it will attack the problem from a different direction. China is enough of a player in every market that when it decides to buy or not, it will affect pricing.
The real question for the WTO goes beyond REEs. It hears cases over steel and aluminum quite often. In general, China does not play by the same set of rules as everyone else. That has to come to an end at some point.
TCMR: How are manufacturers that use REEs responding to supply risk?
LR: The largest OEMs – the Boeings, Apples and HPs of the world – have very extensive supply-risk management strategies in place. They track, rank and rate all the materials they buy. The aerospace sector has been brilliant in identifying sources of supply around the world. The Toyotas of the world are looking not only at the supply end, but also on the recycling end to bring materials back. They are rethinking the whole supply chain.
Things get a little more dicey among the middle-market and smaller firms. Some of them face tremendous risks for not thinking through the supply options for REEs. For example, I spoke at an event over a year ago on base metals markets. But peoples' questions centered on REEs. It was obvious that REE price spikes were making these companies frantic and export price controls put tremendous strains on their businesses because they were not prepared with alternative sources.
It's not a clean division by company size, but you see different levels of sophistication amongst companies in terms of how they handle supply risk.
TCMR: Do you believe REE prices will stabilize where they are now or is there room for more downward momentum?
LR: When I look at the REE trend line, I do not see a floor. A floor would be a flat line for a couple of months. Instead, we see a steady descent with a little upward blip in April and May. Since May, the numbers have continued to fall. I am not suggesting prices will move down again in September, but the fact that we have not seen a floor tells us that further weakness remains.