CME Group is preparing what would be the first futures contract centered on rare earths, with the contract aimed at neodymium and praseodymium (commonly abbreviated NdPr). The initiative is designed to offer a formal hedging mechanism for entities exposed to the rare earths sector - including governments, corporate buyers and financial institutions - where price discovery and risk management options are currently limited.
Another exchange, Intercontinental Exchange, is also reported to be considering rare earths futures. However, that effort is described as less advanced than CME Group's development work.
Rare earths are a family of 17 chemical elements that the article identifies as essential inputs for the energy transition, electronics manufacturing and defense applications. NdPr are singled out for their role in permanent magnets, which are used in electric vehicle motors, wind turbines, fighter jets and drones.
No final decision has yet been reached on launching the futures contract. Observers point to significant hurdles in establishing the market - most notably that rare earth materials are thinly traded and the underlying market is much smaller than the markets that underpin most established metals futures products.
Western governments have been stepping up efforts to increase production of critical minerals. The United States has pursued a preferential trade bloc with allies and has also established a $12 billion strategic stockpile aimed at bolstering supplies of critical materials.
At present, NdPr prices are largely set in China. Price levels are reflected in indexes published by industry price reporting agencies, including Fastmarkets, Benchmark Mineral Intelligence and Shanghai Metals Market. China supports spot trading of rare earths on two domestic exchanges - the Ganzhou Rare Metal Exchange and the Baotou Rare Earth Products Exchange - and the Guangzhou Futures Exchange has indicated plans to offer rare earths futures as well.
The proposal from CME Group, if taken forward, would create a new benchmark instrument in a market where price formation is currently concentrated in a small number of venues and where hedging tools are limited. How quickly such a contract could attract liquidity and become a reliable reference price depends on market participation given the thin trading that characterizes rare earths today.
Summary of facts
- CME Group is developing a futures contract focused on NdPr.
- Intercontinental Exchange is also exploring similar futures, but is reported to be at an earlier stage.
- Rare earths encompass 17 elements; NdPr are crucial for permanent magnets used in EV motors, wind turbines, fighter jets and drones.
- No final launch decision has been announced; liquidity and small market size are cited as major challenges.
- NdPr prices are currently determined in China and tracked by specialist pricing agencies; China operates two spot exchanges and another Chinese exchange has signaled plans for rare earths futures.