The rare earths market is experiencing a boom in demand as trade tensions between China and the US intensify.
Investors have been snapping up shares in rare earths producers after China announced plans to restrict the export of rare earths. In response to the move, the US has threatened to put 100% tariffs on China.
Rare earths minerals are vital for defence systems, EV motors, and clean energy applications.
At the time of writing on Tuesday afternoon, Lynas Rare Earths Ltd (ASX: LYC) shares are 4.05% higher for the day and trading at $21.06 per share.
Meanwhile, Meteoric Resources NL (ASX: MEI) shares are 19.51% higher for the day at 24 cents per share.
Iluka Resources Ltd (ASX: ILU) shares are also up 14.19% today and changing hands at $8.77 per share.
Now, in an update to investors, Macquarie Group Ltd (ASX: MQG) has revealed what it expects for the rare earths market going forward.
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Rare earths market to remain tight
The broker has forecast a small deficit in the NdPr (Neodymium and Praseodymium, two rare earth elements) market balance in the 2025 calendar year, with 108kt of supply and 110kt of demand.
Macquarie said the market could remain in deficit with an NdPr supply gap of 6kt and ~0.5kt for the 2026 and 2027 calendar years, respectively. The market could also return to a tight balance with greenfield supply growth and increased recycling for 2028-2030.
"We forecast 10% annual NdPr demand growth over five years, driven by 15% CAGR from EVs and 30% from robots (low base), primarily industrial, not humanoid. Slower growth in other sectors moderates the overall pace, but strong robotics and EV momentum will underpin sustained demand expansion across the rare earths value chain," the broker said in its investor note.
On the supply side, Macquarie said it expects supply to remain disrupted in the near term thanks to China's 2025 rare earth element output decline. This is due to MP Materials' concentrate sale suspension, which has disrupted supply.
"Imports from Myanmar partially offset the shortfall, but overall supply remains tight, supporting near-term market deficit and price volatility. Domestically, we note recent projects were upgrades (pollution control) instead of expansionary," the broker said.
Macquarie has also lifted its long-term NdPr prices from US$95/kg to US$110/kg. It expects NdPr prices to peak at US$120/kg by late 2026 to early 2027. This will be mostly driven by strong magnet demand from EVs, white goods, and electronics, amid limited supply response.
"Expansion from Lynas, MP, and greenfield projects may ease tightness by late-2026. China remains dominant in supply and demand, and any accelerated supply response poses downside risk," Macquarie said.
Macquarie's outlook on rare earth stocks
The broker has confirmed a neutral rating on Iluka and Lynas Rare Earth shares, with target prices of $6.60 and $18.50, respectively.
At the time of writing, this represents a potential 24.7% downside for Iluka shares and a potential 12.2% downside for Lynas Rare Earth shares.
Macquarie has an outperform rating on Meteoric shares and a target price of 34 cents per share. That represents a potential upside of 41.7% over the next 12 months, at the time of writing.
