Herein lies the issue. Mountain Pass already generates about 8ktpa of REO. Projects in India and Russia generate roughly 7ktpa, and recycling can provide up to 1ktpa of further REO. Now remember that Mountain Pass will soon be providing a further 11ktpa of REO following their phase 1 upgrade.
That is 27ktpa of REO from ROW sources right now already before LYC even has a chance to bring their production up to their first target of 11ktpa.
Now imagine in one year's time when Molycorp will bring their project up to 40ktpa, Lynas up to 22ktpa, and the secondary sources of REO remain.
Total supply of close to 70ktpa, for a ROW demand of 12ktpa! For those wondering about Chinese demand, China has its demands already met via its own production and stockpiling of material throughout the year.
Now yes, if prices become too low then Molycorp may have to run on a marginal profit at best, but their OPEX is hardly any higher than LYC's if you crunch the numbers in their earnings reports. Put simply, its not a case of Molycorp getting hurt before Lynas if prices drop too low, they will both be hurt equally as much.
With ROW supply set to more than double over the next year or so, its very likely that ROW demand won't be able to keep with this supply onslaught and we could see basket prices drop even more!
LYC Price at posting:
58.5¢ Sentiment: None Disclosure: Not Held
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