Sunday, 26 February 2012

Rare Earths Prices are as Expensive as they were in the 1970s – Inflation Adjusted Historical Rare Earth Metal Price since 1970s in Pounds Sterling

Rare Earth Metal Prices - Not as cheap as they use to be

Rare earth elements or rare earth metals are a set of seventeen chemical elements in the periodic table, specifically the fifteen lanthanides plus scandium and yttrium.  Scandium and yttrium are considered rare earth elements since they tend to occur in the same ore deposits as the lanthanides and exhibit similar chemical properties.

They have several industrial applications from electronics (semiconductors), glasses, laser, catalyst, magnets to sensors.  The end-use markets for rare earths are estimated to be: catalysts, 47%; metallurgical applications and alloys, 13%; alloys, 11%; glass polishing and ceramics, 10%; permanent magnets, 9%; ceramics, 5%; rare-earth phosphors for computer monitors, lighting, radar, televisions, and x-ray-intensifying film, 5% (Ref: US Geological Survey,Mineral Commodity Summaries 2011).  Until 1948, most of the world's rare earths were sourced from placer sand deposits in India and Brazil.  In the 1950s South Africa took the status as the world's rare earth source, after large veins of rare earth bearing monazite were discovered.  Through the 1960s until the 1980s, the Mountain Pass rare earth mine in California was the leading producer.  Today, the Indian and South African deposits still produce some rare earth concentrates, but they are dwarfed by the scale of Chinese production.  China now produces over 97% of the world's rare earth supply, mostly in Inner Mongolia even though it has only 37% of proven reserves.

New demand has recently strained supply, and there is growing concern that the world may soon face a shortage of the rare earths, this is a very important element to examine.  Plus the strategic political importance to these elements in the semiconductor and sensors used in modern weapons, new mines are been reopened or developed in the US, Australia in particular.

Rare earth elements are not exchange-traded in the same way that precious or non-ferrous metals are. Instead they are sold on the private market, which makes their prices difficult to monitor and track.  There are some reviews of the rare earth market and price, but these don’t usually cover the long term price history or adjusted to account for inflation.  The estimated annual average rare earth price data came from the US Geological Survey.  The US Geological Survey used estimated the US price in actual dollars by a weighted average of imports and export.  The historical UK Pound to US Dollar exchange rate data came from Lawrence H. Officer, "Dollar-Pound Exchange Rate From 1791," MeasuringWorth, 2011 at  The prices were adjusted for inflation by converting the nominal price into the equivalent in 2011 US Dollars and 2011 GP Pounds Stirling.  The US inflation data came from the historical CPI from the US Department of Labor.  For the UK inflation the data came from Dominic Webb (2006) "Inflation: the Value of the Pound 1750-2005" Economic Policy and Statistics Section, Research Paper 06/09, House of Commons Library, UK.  From this you get the following results shown in the graph below.
hart showing the historic price of rare earths and the inflation adjusted rare earth price since 1940 to 2011 in Pounds Sterling and Dollars
Historical Annual Average and Inflation Adjusted Rare Earths Price since 1940 in Pounds Sterling and US Dollars

The doted lines are the unadjusted nominal annual average rare earths price, and the sold lines are the inflation adjusted rare earths price.  The first thing that becomes obvious is that the unadjusted rare earths price was at its lowest in the early 1961s in Dollars and Pounds Sterling at approximately $82 and £30 per a metric tonne respectively.  Furthermore before 2010 the nominal price peak occurred in 1948 in US Dollars at $14,700 per metric tonne and in occurred in 2008 in UK Pounds at £7,300.   

However when you examine the inflation adjusted rare earths price, you notice that its lowest prices was in still occurred in 1961, in both Dollars and Pounds terms at $618 and £535 per metric tonne respectively.   The pries see in 2010, in both dollars and Pounds are comparably to the inflation adjusted prices in the 1970s, nevertheless are not as high as those before the 1960s.  From the 1940s the inflation adjusted price decreased from $140,000 and £95,000 to $27,000 and £23,000 per metric tonne.   From this chart it can clearly be seen that since the 1962 the inflation adjusted price of rare earths has oscillated between $2,000, and £1,500 to $20,000 and £20,000 per metric tonne.  Using the price in 1971 as a baseline the inflation adjusted platinum price in UK Pounds and US Dollars was indexed and this is shown below.
Chart showing the inflation adjusted price of rare earths since 1940 and clearly shows that the real price is as expensive as it was in the early 1970's but not as expensive as it was before the late 1960's.
Historical Inflation Adjusted Rare Earths Price since 1940 in US Dollars and GB Pounds, Indexed to 1971

The indexed price data clearly displays that the historic inflation adjusted rare earths prices has fallen considerably since the 1940s.  Their real prices are no where near the prices they use to be before 1960.  To in examine the relative price changes during this historical cheap price for rare earths the indexed price data is plotted from 1960 and is shown below. 
Graph showing the inflation adjusted price of rare earths since 1960 and clearly shows that the real price is as expensive as it was in the early 1970's.
Historical Inflation Adjusted Rare Earths Price since 1960 in US Dollars and GB Pounds, Indexed to 1971

It can be seen from this chart that the inflation adjusted price in both US Dollars and UK Pounds were stable during the 1960s.  During the 1970s the price was very volatile increasing 800% by 1972 only to eventually decrease to 200% of the 1971 price in Dollars, in Pounds the price also returned to the inflation adjusted value of 1971.  The price was prettily volatile during the 1980s, but not as bad as the 1970s.  However there was a step change in the price at the end of the 1980s and early 1990s.  Since then there has been a gradual decrees in the inflation adjusted pries, were upon it bottoms in 2005 at the same value as seen in the early 1980s, at just under 200% of the 1971 price in Dollars and just above 100% of the 1971 price in Pounds.   Since 2005 the price has rapidly raisin to over 800% of the 1971 price in Dollars and 600% of the 1971 price in Pounds. 

So from a historical perspective this makes the price of rare earths as expensive as the inflation adjusted prices of the early 1970s, but not as expensive as they were before the 1960s.

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