What does bypassing China in rare earths mean?
Over in the US, rare earths miner MP Materials announced this week a deal to ship output from its new processing plant directly to Japan’s Sumitomo for exclusive distribution to Japanese customers. Media reports frame this deal as a move to “skip China;” MP and Sumitomo say it will “stabilize, diversify, and strengthen” the rare earths supply chain.
That sounds great, and is a sign of shifting winds. It also begs the question of how much reliance remains. According to MP’s filings, for the first nine months of 2022, over 96% of the company’s revenue came from sales to Shenghe Resources, the Chinese state-backed mining giant that owns a minority stake in MP.
CATL plays favorites
Chinese battery giant CATL is looking to cement its dominant market share by striking a deal with automakers: It will offer cut-rate prices on its EV batteries to select clients if they can commit to buying 80% of their battery needs from CATL over the next three years, according to media reports.
While CATL hasn’t confirmed details publicly, it’s possible it will only extend this loyalty program to Chinese EV makers like Li Auto, NIO, Huawei, and Zeekr. Tesla, despite having a significant manufacturing footprint in China, will reportedly be excluded. This selective pricing structure would effectively give preferential customers a 20% discount over spot market prices, according to calculations by the consultancy Roland Berger.
The Chinese tech outlet 36Kr described CATL’s plan as a “lithium rebate” program that passes cost savings from its lithium offtake contracts onto customers. Maybe so. It could also be an outright subsidy to select Chinese automakers, positioning them to undercut foreign competitors and in turn bringing increased downstream demand for, and locking in the role of, CATL’s vertically integrated operations. Or as the Chinese outlet 21st Century Business Herald put it, CATL’s pricing plan “has ample lethality.”
News of CATL’s pricing plan comes as lithium prices in China have slumped 30% in the past three months, falling from November highs to below 400,000 RMB (58,000 USD) per ton. Now, CATL’s offer of discounts—reportedly based on CATL-produced lithium carbonate priced at 200,000 RMB per ton—could put further downward pressure lithium prices.
Chinese industrial lithium carbonate prices
Natural gas prices come tumbling down
Prices of gas in the US and Europe have slumped so much that the fuel is now becoming competitive with coal.
In the US, March Henry Hub futures for gas hit 2 USD per million British thermal units, down from over 9 USD last August and only slightly above the 1.85 USD seen in the crash of March 2020. That has made gas cheaper to burn than coal, as coal-fired plants become increasingly uncompetitive when gas prices dip below 3 USD/MMbtu.
Meanwhile, Freeport LNG in Texas finally has the green light to restart operations at its liquefaction facility and ramp up exports again. That could potentially put a floor on US gas prices. But analysts reckon limits on liquefaction and export capacity will likely continue to weigh on prices.
And in Europe, gas prices have fallen 15% from last summer’s peaks, with benchmark futures hovering around 50 euros. But gas prices may not have further to drop: The lower costs are on track to make gas more profitable than coal for power generation, particularly as prices of carbon permits surge. That could help put a cap on coal’s comeback; countries switched to the dirtier fuel as Russia’s throttling of supplies sent gas prices skyrocketing last year.