CME Group is exploring the introduction of the world’s first listed futures contract in rare earths, according to three people familiar with the discussions. The proposed instrument would combine the two principal rare-earth elements used in permanent magnets - neodymium and praseodymium, commonly traded together as NdPr - and would provide a venue for hedging exposure to a market currently controlled by China.
Rival exchange Intercontinental Exchange is also examining the idea of rare earth futures, but at a less advanced stage of development, two of the people said. CME declined to comment and ICE did not immediately respond to a request for comment.
Why NdPr and why now
Neodymium and praseodymium are among the 17 elements classed as rare earths and are central to the production of permanent magnets. Those magnets are used across the energy transition and defence sectors, including in electric vehicle motors, wind turbines, fighter jets and drones. The sources said the NdPr pairing makes sense for a first contract because the two metals are typically transacted as a combined product.
One of the people described such a futures contract as a missing piece for participants seeking to manage price risk in the industry. No final decision has been reached on whether CME will proceed with a launch.
Market structure and price formation
Today, NdPr prices are largely established in China and can be found in indexes produced by price reporting agencies. China hosts two spot trading platforms for rare earths - the Ganzhou Rare Metal Exchange and the Baotou Rare Earth Products Exchange - and has also seen the Guangzhou Futures Exchange signal plans to offer rare earths futures at some point.
Price reporting services such as Fastmarkets, Benchmark Mineral Intelligence and Shanghai Metals Market publish China-based NdPr prices. Benchmark Mineral Intelligence has also started publishing NdPr prices referenced to Europe and North America, though volumes in those regions remain thin, the sources said.
According to Shanghai Metals Market data cited by the sources, NdPr prices set in China have climbed about 40 percent so far this year to reach levels last seen in July 2022, yet the market has also shown significant volatility - falling roughly 50 percent over the 15 months to May 2023.
Policy and financing implications
Governments and industry efforts to reduce reliance on Chinese processing have included trade and stockpile measures. The United States recently unveiled a preferential trade arrangement with partners and announced a $12 billion strategic stockpile. In a prominent U.S. engagement with the sector, Washington agreed last July to a multibillion-dollar package with MP Materials that included a 15 percent stake and a price floor tied to the NdPr price.
One persistent barrier to expanding non-Chinese refining and mining capacity is banks' reluctance to finance projects in a market marked by substantial price swings. Lenders struggle to forecast future revenues for mines and processors, while producers lack a liquid futures market with which to hedge the risk of price declines. Market participants building magnets for industrial uses, notably electric vehicle manufacturers, could use futures to manage exposure to magnet feedstock prices.
Exchange experience and context
CME has previously introduced futures contracts for other critical minerals, including lithium and cobalt, both used in electric vehicle batteries. The exchange also reported a fourth-quarter profit this month that exceeded Wall Street estimates and said average daily trading volume rose 7.5 percent to a record 27.4 million contracts.
Despite the strategic interest and precedent for critical minerals futures, launching a liquid, credible NdPr contract faces hurdles. Rare earths are thinly traded and the underlying market is small relative to most other metals futures, which raises questions about the depth and resilience of a listed contract.
What remains uncertain
Key unknowns include whether CME will move ahead with a formal launch, how a contract would achieve sufficient liquidity, and whether the contract could shift price discovery away from current China-based benchmarks. The people familiar with the matter declined to be named because the discussions have not been made public.
If executed, a listed NdPr futures contract could be an important financial tool for governments, manufacturers and banks seeking to manage risk related to rare earth price movements. However, its ultimate impact will depend on adoption by market participants and the development of trading volumes sufficient to support robust hedging activity.