if you haven't already listened to the recent quarterly, definitely recommend.. There was some great questions and answers some of which touch on your question …
at the 43:58 mark Tim Hannon of Newgate Capital ask's a question on Lynas' "Pricing Framework"
Analyst Tim Hannon - Newgate capital: thanks Amanda, just on your pricing framework. I know you're trying to move away from the NdPr pricing benchmark and moving to a contracted price ... the reason im thinking about this is because cost is one thing BUT the value that rare earths provides to electric vehicles magnets is considerable, performance benefits .. just interested in how you work out how to price rare earths given those performance benefits and the fact that Lynas is the only ex china producer
Amanda (Lynas): thats such an encompassing question ... i guess .. we need to take into account that we sell at various stages in the supply chain.. so when we're selling to magnet makers the main task is to carefully balance volume demands and that's one of the reasons we're spending money on increased production as we would have no problem placing significantly more than we are placing today in the market ... and to do that in a way that actually optimizes the price at any given time and so we still do get a small premium for our sales into japan and so therefore we do continue to prioritise sales into the japanese market.
Those contracts that we have, they're essentially volume contracts with a price formula associated with them, ... and those price formulas will relate back to the published price but the benchmark price used in the formula varies on the various different contracts and they balance out... on the impact of any price movements, over time it settles ... we are able to optimize around that.
In terms of the longer term contracts, which is really about getting a new or different pricing model we have i guess 2 major structures to those ... one option is straight up fixed price, which is something that is agreed, it takes into account an industrial pricing negotiation, value in use, recognition of cost+ dynamics, recognition of competitive environment then together we settle on a price ... We have one fixed priced contract on NdPr which is now nearly 5 yrs old, with one particular customer and during that period there have been times when said customer has been paying significantly over the notional market price and other times they've been paying below the market price on balance it has worked for both of us ... so there is one which is fixed price where there is a number of inputs which ends up as a negotiated fixed price including the fact that we are clearly not going to fix price at any number that doesn't give us good sustainable returns on that material...
... the second one which a number of customers are very interested in is one which is a floor-ceiling price .. and the gap between the floor and the ceiling determine the level at which we set that. So if its a large spread then the lower price will tend to be relatively lower and the higher price will tend to be relatively higher ... If its a smaller spread then typically the floor will be higher and the ceiling will be a little bit lower ..
.. so really its those 2 different approachs which is core to what we are seeking to develop with our various customers.
I guess Tim one last thing on that particularly when we are talking about contracting at various stages through the supply chain .. the other relevant piece to those contracts is that sometimes they will be specific to a project with an automative producer.. So a car company, an OEM will actually have a platform they're seeking to develop and they will engage with their tier-1 suppliers for supply of material across the platform . So sometimes we are seeking to contract with a tier-1 supplier for ALL their consumption across ALL of their different customers and other times we are effectively working as a partner to the tier-1 supplier to be able to quote on a specific piece of business with an OEM ... and ofcourse those two things relate in slightly different dynamics in the price negotiation
(20min delay)