How the dawn of the robot age could send rare earth demand ballistic

Rare earths demand could be supercharged by the growth of the humanoid robot market. And it could leave magnet makers scrambling for supply.

Robots could set rare earth demand on a canter. Pic: Getty Images

• Rare earths prices have been subdued by oversupply and Chinese market dominance

• But challengers are emerging in the West

• And demand continues to grow, with analysts suggesting the next disruptive tech, humanoid robots, could double it by the 2030s

Oversupplied and dominated by opaque Chinese market forces, rare earths such as neodymium, praseodymium, terbium and dysprosium have been subject to more than three years of turgid prices, which has subdued earnings for miners and kept prospective projects in the ground.

But with supply constrained and China responding to US tariffs with export controls on heavy rare earths, the strategic backdrop for Western explorers and developers is getting brighter.

While a weak Chinese economy has played its role in restraining rare earths demand growth in recent years, enabling China to suppress prices with high mining quotas and imports from neighbouring Myanmar, the long-term outlook is better than it appears in the short term.

And a key inflection point could be emerging in 2025.

Previous trends like Chinese industrialisation, electric vehicles and renewable energy growth may have driven the previous surges in rare earths demand.

But a new technological development is taking shape that promises yet another uptick.

Citic Securities has declared 2025 could be the first year of the mass production of humanoid robots. A step towards the future envisaged by Isaac Asimov in The Bicentennial Man or the creation of Bender B. Rodriguez, sure.

But also a major potential driver of permanent magnet demand – according to Tianfeng Securities there's around 2-4kg of NdFeB magnets in each humanoid robot.

At a long-term target of 100m units annually, that's an entire rare earths market worth of additional demand.

Breaking out

Western analysts have picked up on the trend as well – with Elon Musk's Tesla (now short of magnet supplies thanks to China's ban) among the companies attempting to develop the nascent industry.

It could be an important growth sector as EV growth begins to slow down with increased market penetration and policy uncertainty.

Canaccord Genuity's Reg Spencer says a number of groups in China and the West are now on the verge of commercialisation.

"We think they will be first deployed in industrial/manufacturing applications, but as costs/tech continue to improve, forecast broader adoption (inc. consumer/home use) by the 2030s. In our view, the advent of humanoid robotics could be a major demand driver for NdFeB magnets, with improving dexterity/higher DOF leading to increasing magnet intensity per robot," he said in a note last month.

Canaccord thinks magnet demand will grow by 84% to 2035, but in an upside case for the uptake of humanoid robotics, that could increase to 147%.

"This clearly has positive implications for key magnet rare earth demand (CGe 90% demand growth by 2035 under our base case)," Spencer said.

Canaccord sees rare earth prices remaining subdued in the short term. Chinese NdPr prices, included VAT, are sitting at a touch under US$56/kg today.

But long-term prices should rise, with Canaccord setting a long term price of US$105/kg.

Goldman Sachs analysts say magnet demand is growing around 15%, with the NdPr market rising 7000-8000tpa. With that in mind, growth plans set out by leading Australian producer Lynas (ASX:LYC) and developer Iluka Resources (ASX:ILU) equate to only just over one year of market expansion.

Their long-term price sits at US$75/kg, but by 2029, they think deficits could push NdPr oxide to US$85/kg.

Room for new suppliers

So while the near term may be muddy, the longer term narrative seems clear – more supply needs to come online as demand rises. And if the upside case for humanoid robots hits, it'll be quicker than the market expects.

"There's a real disparity in the market (in) that the demand for the products are quite strong. And ... we're developing new markets for these products all the time," Andrew Reid, managing director of South American developer Brazilian Critical Minerals (ASX:BCM), said.

"As the world moves into electrification, there's only going to be more and more need for rare earth and for the permanent magnets they create.

"And equally in the defence sector. There's wars all over the world at the moment and certainly in all those products, without them, there are no defence mechanisms for any country."

Where that additionally comes from is the question. Reid says you can't count out China, where information on what the Communist Party is planning can be hard to read.

It previously responded to a record price environment seen in early 2022 by encouraging state owned enterprises to buy up projects and supply outside of China, as well as using quotas as a mechanism to bring supply on faster than demand was growing.

The Western market has been slow to build supply chains that seriously confront this challenge, but may be forced to by the latest trade war salvo from the Middle Kingdom.

Lynas, for instance, is expecting to begin producing heavy rare earths dysprosium and terbium at its Malaysian refinery in June, and is engaging with customers in the West in a bid to sell an alternative to Chinese products.

"In light of the Chinese government’s recent export restrictions on Tb and Dy oxide, LYC has engaged with target Western World customers with pricing offer expected to reflect the high demand for these products outside China," Goldman's Paul Young and Chris Bulgin noted.

"This is an important change in LYC’s marketing strategy and the broader ex-China RE industry in our view, and signals the potential start of the decoupling of Western world prices from China, with a likely impact to NdPr pricing separate to China also."

Standout opportunity

BCM's Reid said the company's Ema project stood out among the host of deposits that could be developed in the next wave of rare earth project developments, thanks to the near surface nature of the deposit.

A clay-hosted rare earths resource in the Amazonas State, a scoping study placed an industry low US$55m capital estimate on the project, producing 4800tpa of mixed rare earth carbonate contained 2660t of total rare earth oxides at cash operating costs of US$6.15/kg, or US$16.95/kg on a NdPr basis.

That means the two-decade-long mine boasts an impressive US$498m post-tax NPV and 55% internal rate of return at prices of only US$74/kg, with payback expected in under 2.5 years.

Around 37.9% of its 55.3% mixed rare earth carbonate would be comprised of the magnet rare earths (Nd, Pr, Dy & Tb) prized for use in permanent magnets and motors.

Ema currently contains a resource of 341Mt at 746ppm TREO, underpinning a potential expansion to 9600tpa of MREC (5300tpa TREO) from the fifth year of operations. That's before considering the upside from inferred resources contained across the project's 82km2 footprint.

That means Ema could be an attractive investment proposition even if China succeeds in continuing to keep a lid on rare earth prices.

"Unfortunately many of the world's rarest projects are simply just not economic," Reid said.

"It goes for any commodity, only the better ones (get developed) and we think that we're in that basket and we think we've got a good shot at getting up and running.

"We've got a clear pathway to development right now and we just need to stick to our guns, keep ticking boxes and making sure we get over those hurdles.

"I think that you'll find that BCM will be one of the first new rare earths projects to get into production over the next couple of years."

Originally published as How the dawn of the robot age could send rare earth demand ballistic