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China looks ahead to the future of rare earth industry
By Keane Hoo |
August 27, 2012, Monday
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Print Edition
Print Edition
THE specter of rare earth price spikes and supply shortages now seems like a distant memory. Indeed, the recent slump in the rare earth minerals industry has further dampened investors' expectations of an imminent rare earth super-cycle.
The rare earth price surge in the first half of 2011 has not only led to miners such as Molycorp and Lynas restarting rare earth production and planning new processing facilities, it has also led downstream users to cut down on consumption or step up the search for substitutes. A case in point was Toshiba's recent successful development of a powerful motor magnet which avoids the use of dysprosium, a rare earth mineral mostly found in China. The Japanese tech giant instead substituted dysprosium with samarium, which is abundant in Australia and the US.
The sluggish demand forced many rare earth enterprises in China to reduce or halt production as export volume and rare earth prices declined. The price of praseodymium-neodymium fell 23 percent year-on-year in the first half, while the price of rare earth carbonate has fallen by 21 percent, according to China Securities.
According to a Beijing Business News report, Chinese exports of rare earth in the first half dropped 42.7 percent year-on-year to 4,908 tons. Total exports this year is estimated at 10,000 tons, down from 16,000 tons in 2011.
The falling rare earth prices were clearly the result of insufficient demand, which exacted a heavy toll on Chinese rare earth producers. Inner Mongolia Baotou Steel Rare Earth (Group) High-Tech posted a 20.6 percent annual drop in 2012 first half net profit to 1.57 billion yuan as it was impacted by rising operational cost. Another major rare earth producer, Guangdong Rising Nonferrous Metals Group, reported a more than 90 percent plunge in preliminary first half earnings as sales volume fell, prices dropped, and margins were compressed.
New capacity
In addition, the new capacity being planned by non-Chinese miners will greatly increase the supply of rare earth minerals and will, to all intents and purposes, eliminate the threat of supply shortages.
Given that China has only begun to consolidate its fragmented rare earth sector in 2011, the rate at which it is supplying the world's demand for rare earth leaves China facing the very real possibility of not being able to maximize the benefits from its rare earth resources in the same way that oil producers have done with their crude oil deposits, before its resources are depleted.
In fact, industry insiders are predicting that China will become a net importer of certain heavy and medium rare earth as it seeks to capture more of the value by dominating the manufacturing of products which require rare earth.
The supply of rare earth from the projects planned by Molycorp, Lynas and other miners will undoubtedly ease the pressures faced by China to supply the world's rare earth demand. This will buy time for China as it attempts to move up the value chain, upgrade its industry structure and make headway in its goal to become the largest consumer of rare earth instead of its present status as the biggest producer.
Toward this end, the recent slew of regulatory measures announced, including the launch in early August of a spot trading platform, Baotou Rare Earth Product Exchange, by Baotou Steel Rare-Earth (Group) Hi-Tech and nine other companies to regulate the trading of rare earth minerals, was a step in the right direction as an more efficient and transparent pricing system will benefit Chinese high-tech manufacturers which are expected to use more and more of the rare earth minerals in their production processes.
Another move was to fix production thresholds of 20,000 tons per year for mixed rare earth mining companies, and minimum output requirements of 2,000 tons for smelting enterprises.
According to Jia Yinsong, an official from the Ministry of Industry and Information Technology, the new standards will result in the shutting down of more than one-third of the 23 rare earth mining companies and almost half of the 99 smelting enterprises. In addition, a crackdown on the illegal production and mining of rare earth was launched on August 1 and will last until the end of the year.
All these moves will help China truly benefit from its rare earth deposits. Furthermore, the commencement in July of a program to use state funds to stockpile rare earth was a wise move to ensure the sustainable development of the sector as this will not only help to support prices in the short term, but it will also boost China's long-term goal to dominate high-end manufacturing even when its reserves eventually begin to deplete.
As an ancient man of wisdom once said, "In the house of the wise are stores of choice food and oil, but a foolish man devours all he has." China has certainly made all the right moves in its bid to profit from its rare earth resources in the long run in a sustainable manner.
The article was edited for length. CapitalVue provides China capital market, fundamental and time-series databases. Read more on www.capitalvue.com.
The rare earth price surge in the first half of 2011 has not only led to miners such as Molycorp and Lynas restarting rare earth production and planning new processing facilities, it has also led downstream users to cut down on consumption or step up the search for substitutes. A case in point was Toshiba's recent successful development of a powerful motor magnet which avoids the use of dysprosium, a rare earth mineral mostly found in China. The Japanese tech giant instead substituted dysprosium with samarium, which is abundant in Australia and the US.
The sluggish demand forced many rare earth enterprises in China to reduce or halt production as export volume and rare earth prices declined. The price of praseodymium-neodymium fell 23 percent year-on-year in the first half, while the price of rare earth carbonate has fallen by 21 percent, according to China Securities.
According to a Beijing Business News report, Chinese exports of rare earth in the first half dropped 42.7 percent year-on-year to 4,908 tons. Total exports this year is estimated at 10,000 tons, down from 16,000 tons in 2011.
The falling rare earth prices were clearly the result of insufficient demand, which exacted a heavy toll on Chinese rare earth producers. Inner Mongolia Baotou Steel Rare Earth (Group) High-Tech posted a 20.6 percent annual drop in 2012 first half net profit to 1.57 billion yuan as it was impacted by rising operational cost. Another major rare earth producer, Guangdong Rising Nonferrous Metals Group, reported a more than 90 percent plunge in preliminary first half earnings as sales volume fell, prices dropped, and margins were compressed.
New capacity
In addition, the new capacity being planned by non-Chinese miners will greatly increase the supply of rare earth minerals and will, to all intents and purposes, eliminate the threat of supply shortages.
Given that China has only begun to consolidate its fragmented rare earth sector in 2011, the rate at which it is supplying the world's demand for rare earth leaves China facing the very real possibility of not being able to maximize the benefits from its rare earth resources in the same way that oil producers have done with their crude oil deposits, before its resources are depleted.
In fact, industry insiders are predicting that China will become a net importer of certain heavy and medium rare earth as it seeks to capture more of the value by dominating the manufacturing of products which require rare earth.
The supply of rare earth from the projects planned by Molycorp, Lynas and other miners will undoubtedly ease the pressures faced by China to supply the world's rare earth demand. This will buy time for China as it attempts to move up the value chain, upgrade its industry structure and make headway in its goal to become the largest consumer of rare earth instead of its present status as the biggest producer.
Toward this end, the recent slew of regulatory measures announced, including the launch in early August of a spot trading platform, Baotou Rare Earth Product Exchange, by Baotou Steel Rare-Earth (Group) Hi-Tech and nine other companies to regulate the trading of rare earth minerals, was a step in the right direction as an more efficient and transparent pricing system will benefit Chinese high-tech manufacturers which are expected to use more and more of the rare earth minerals in their production processes.
Another move was to fix production thresholds of 20,000 tons per year for mixed rare earth mining companies, and minimum output requirements of 2,000 tons for smelting enterprises.
According to Jia Yinsong, an official from the Ministry of Industry and Information Technology, the new standards will result in the shutting down of more than one-third of the 23 rare earth mining companies and almost half of the 99 smelting enterprises. In addition, a crackdown on the illegal production and mining of rare earth was launched on August 1 and will last until the end of the year.
All these moves will help China truly benefit from its rare earth deposits. Furthermore, the commencement in July of a program to use state funds to stockpile rare earth was a wise move to ensure the sustainable development of the sector as this will not only help to support prices in the short term, but it will also boost China's long-term goal to dominate high-end manufacturing even when its reserves eventually begin to deplete.
As an ancient man of wisdom once said, "In the house of the wise are stores of choice food and oil, but a foolish man devours all he has." China has certainly made all the right moves in its bid to profit from its rare earth resources in the long run in a sustainable manner.
The article was edited for length. CapitalVue provides China capital market, fundamental and time-series databases. Read more on www.capitalvue.com.
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