Neodymium costs driving up prices on magnets, how will the cost be passed onto the consumer?

By on Jul 09, 2011

Recent news regarding the Chinese announcing plans to centralise control over its rare earth mine assets has led to increased prices for these minerals, especially neodymium used in permanent magnets we find in everything from cars to TV and most importantly to the hobby — in pump impellers, magnetic mounts and algae scrapers. The cost of neodymium has increased nearly five times its price from just six months ago.

We’ve touched on this topic before focusing more on lanthanum but as magnets are more prevalent in the hobby, we’re more likely to see the long term effect on what we pay at the checkout register.

The rising costs of the raw materials, in this case rare earth metals, is trickling down the supply chain affecting manufacturers who now have more increased costs to deal with on magnets coupled with increased fuel costs for shipping and copper costs for wiring and other electrical components. As manufacturing costs increase, hobbyists will see the effect on the final price of these types of goods they purchase.

While many products are seeing anywhere from a 5 to 15% increase in prices over the last six months, some manufacturers are keeping their pricing firm, for now. According to a representative from Hydor the additional immediate added costs for rare earth magnets and copper — both seeing significant price increases recently — led the company to make the decision to absorb these costs for now and will reevaluate down the road to try hoping to maintain consistent pricing for as long as possible.

As products contain more components the costs of magnets can be lessened but those products where a magnet is a major component — magnetic mounting brackets and algae cleaning magnets — its harder to hide that increased cost. For example, the IVS Portal attaches to your tank using magnets just like an algae cleaner. When we first viewed the product, suggested MSRP was around $65 but the costs of magnets and other materials has shifted the price to $79.99.

Domestic Chinese price (the price inside China) for Rare Earths in US$/kg. Chart via Lynas Corp.

How can China appear to have a stranglehold on the market? Numbers show China currently produces and exports 97% of the world’s supply of rare earths and the success comes largely from its loose environmental policy rules, which allow Chinese miners to dig up the minerals cheaply.

“The rising cost of Neodymium will quickly impact the aquarium hobby due to the common use of magnets and motors in aquarium equipment. As a non-Chinese based manufacturer we applaud the WTO for its recognition of this problem and recent ruling regarding China’s REM policies. We hope for a speedy correction in the market price of these materials,”  said Tim Marks, President of EcoTech Marine.

These higher rates, restriction and tariffs are not being imposed by China on domestic use of rare earth metals, so these increased prices are applied to Chinese exports only.

Despite this name, rare earths are not that rare and are found in other countries including Japan, Australia and the US but environmental policy means access is not as easy or as affordable. Don’t think the global markets and governmental bodies are oblivious to China’s tactics, recently the World Trade Organization (WTO) ruled that China is in violation of international trade regulations. While the legal ramifications get ironed out, we are not likely to see too much relief in the immediate future.

It is understandable for consumers to want to see prices remain steady but for the overall health of a business, there is only so much additional costs that can be absorbed before negatively affecting profit margins. If a company’s margins are too low and loses profitability, it can spell disaster for the not only the company but the overall health of the hobby and market.

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