A global deficit in supply of rare earth elements is likely to peak this year before moving into surplus by 2013, according to Goldman Sachs analysts.

In a research note Thursday, analyst Malcolm Southwood said the world was likely to see a deficit of 18,734 metric tons of the metals this year, equivalent to 13.2% of demand, before slipping into a surplus in 2013 which will rise to 5,860 tons the following year, or 3.2% of projected demand.

However, prices will likely continue to rise, the bank said. "We envisage that the market for rare earths will remain in severe deficit in 2011 and 2012, and that prices will trend higher over the next 18 months. We envisage a closely balanced market in 2013, and modest surpluses thereafter--at least, for some of the more abundant light rare earths--with some price softening in the 2013-2015 period."

Prices for rare earths have jumped sharply since last July as China, which accounts for around 90% of global production of the elements, has clamped down on export quotas and illegal production.

The basket price of rare earths in Lynas Corp. (LYC.AU) Mount Weld deposit was last recorded at $162.66 per kilogram on May 2, compared to an average of $10.32/kilogram throughout 2009.

Goldman said that Chinese output would fall 2.5% this year and resume growth in 2012, as a campaign to cut down on illicit production and improve environmental records reached its conclusion.

Rare earths are a suite of 17 elements with diverse uses from high-powered magnets and fuel refining to energy-efficient light bulbs and mobile phone screens.

-By David Fickling, Dow Jones Newswires; +61 2 8272 4689; david.fickling@dowjones.com
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