Gotta cut thru the hysteria re little baggies of NdPr trading on the spot mkt effectively and consider the broader market, and more specifically Lynas's customer base, engaged and to be engaged.
First obvious point is Lynas sales contracted, second there is a VERY narrow customer base, literally a handful of metal/mag makers, and maybe another handful of significant OEM's looking for LONG term, life of model, security of supply AND price.
Third, let's say NdPr values have been elevated rapidly by Beijing straight into the sweet spot, the middle of the economic range, when you consider a big part of the leverage employed was/is supply constraint it is difficult to call it good luck, a coincidence, or even free market forces. IMO clearly orchestrated by the confluence of maturing NdFeB demand domestically to match export demand, with the completion of supply control initiatives. Just witness Xi's broader actions, within the metals industry and China at large.
If we can accept that the Dragon is not simply blowing hot air, that they intend to manage the current excess capacity currently being constrained, to match the clearly growing NdFeB demand, anecdotally 16% CAGR ATM, it matters little to Lynas that the spot prices wobbles $10/20/30kg in any direction.
NdPr now sits within an economic base, given the handful of contracted customers accept that it is going to stay there, as NdFeB demand grows steadily over say the next 5 yrs, Lynas is now in a wonderful position to decommoditise it NdPr stream, to write MUCH longer, life of model contracts, with floor & ceiling prices tailored to individual customers, totally independent of the spot mkt for little baggies.
Wouldn't be surprised if Lynas hang out a "SOLD OUT for 5 yrs" sign on the initial 6ktpa NdPr sometime H1 '18.
Beijing has flipped the switch and restored pricing power, in balance, really doubt they'd be so stupid to trash it again, and perhaps the Bn's of yuan that were very clearly washed, and scrubbed, thru the Dy mkt in just weeks is indicative.
Big part of AL's skill set has been locked in the bottom drawer past three years, for lack of pricing power, she clearly sees the opportunity to decommoditise, to produce "product" tailored to customers needs, either physically or terms of delivery or both, as a specialty chemical company.
Lynas poised to reap the benefits of NOT having a traditional "mining" CEO, who would be thinking about long lunches about now based on commodity prices, AL is just getting started, and there is absolutely No Peer ROW (and frankly even if there were they have NO concept of who, what, where re mkt).
As I've mentioned to a number of punters, you will NEVER understand the RE industry top down, looking at "wot's in the ground", Magic Pudding process', pilots, con MOU's (a dime a dozen), copious amounts of twaddle from industry & "experts" alike, you need to understand bottom up, OEM needs & wants, and the supply chain that delivers them. Once you have that sorted you have to tailor your assets to enter that supply chain at the point of maximum value achievable.
Try finding any of that in the glossies, they inevitably conclude in a warm, fuzzy black hole.
Expand
(20min delay)
