Regardless of whether you consider the recently opened Baotou Rare Earths Products Exchange or the rare earth stock exchange, the prices of rare earths in China have gained strength recently, buoyed by the efforts of China’s State Bureau of Material Reserve (SBMR) to proceed with a new round of its rare earth stockpiling plan.
The state-run ‘China Securities Journal’ reported, on April 9th, that an agreement over reserves has been signed between the SBMR and some large rare earth producers (including China Minmetals Rare Earth, Inner Mongolia Baotou Steel Rare-Earth, Chinalco Rare Earth, Rising Nonferrous Metals Co Ltd, Ganzhou Rare Earth and Xiamen Tungsten Co.). This will result in more than 13,000 tons of rare earths adding to the country’s strategic reserves at a purchase price expected to be about 10% higher than market levels – slightly above the average for the past six months.
Based on the volume of national reserves, the top rare earth producing companies will be required to increase, by about 30%, their companies’ reserves, which will surely boost rare earth prices in the short term. Therefore, rare earth prices in China are expected to rise in the coming weeks amid expectations that an impending state reserve purchase will boost sentiment, market participants have said.
Currently, Chinese demand for rare earth raw materials, particularly in the rare earth permanent magnet sector, despite major Chinese high-end NdFeB manufacturers operating at 70%-80% since this year, stood at 30%-40% due to the severe overcapacity. But demand for rare earth permanent magnets in China is expected to grow 15% to 126,000 tons by the end of this year, according to a research report from Shenyin Wanguo Securities (SWS), a Chinese leading securities company.
Trading prices for praseodymium-neodymium oxide, cerium oxide and europium oxide listed on the Baotou Rare Earth Products Exchange, have already risen from 320 Yuan/Kg to 364.7 Yuan/Kg, 19.5 Yuan/Kg to 22.02Yuan/Kg and 4000 Yuan/Kg to 4571Yuan/Kg respectively in the past nine trading days since March 28. Indeed, “the Baotou Rare Earth Products Exchange is expected to regulate the country’s rare earth market, improve the way prices are formed and promote development of the industry”, said Jia Yinsong, a Ministry of Industry and Information Technology official.
Over the past decades, the export prices for China’s rare earths were comparatively low due to a lack of environmental protection costs associated with their production. China will proactively introduce a set of new taxation policies in this highly polluting sector, designed to preserve the environment. The environmental protection tax Legislature has officially started and Chinese experts expect it to be implemented next year. China’s latest move, a new environmental protection tax on rare earths beginning in 2015, will push prices further.
As the world’s largest producer of rare earths, China provides more than 90% of global supplies. Despite the WTO’s ruling to force China to remove its cap on rare earths exports, international dependence on China’s exports of rare earths raw material will remain, made more critical by growing constraints in the country’s rare earth market.
Rare earths are only a tiny market, but they are critical to ensure the sustainable development of high-tech industries and national defense. The WTO’s ruling has forced China to rethink its rare earth industry policy measures to balance the market. The Association of Chinese Rare Earth Industry is now studying the WTO report and evaluating its impact on the country’s rare earth industry. The association also will host “2014 International Conference on Rare Earth Resources and Market” in Guangzhou, China, June 16-18, 2014, which will provide a welcome opportunity to grasp the latest Chinese rare earth industry policies.