Lifton & Weslosky on the Impact of Chinese Environmentalism on Rare Earth Production Decline
Tracy Weslosky, Editor-in-Chief and Publisher of InvestorIntel and Jack Lifton, Founding Principal of Technology Metals Research, LLC, hold their weekly InvestorIntelReport commentary. This week the focus is talk about the effect of the World Trade Organization (WTO) ruling in favor of the United States, Japan and the European Union in their case against China over rare earths trade restrictions.
Tracy actually heard Jack speak on Radio China International (RCI) about the impact that the WTO ruling would have on Chinese rare earth production. Jack is adamant that he thinks nothing will change because “The Chinese are still producing all of the rare earths; they’re still consuming all of the rare earths at the mine and the refinery, the metal making stage and the magnet making phase…”. So, he asks “what difference does it make? I don’t see any difference.” Nevertheless, Tracy points out that Baotou and Minmetals have reported sharp earning reductions. Jack says this has little to do with the WTO and more to do with a slow market and with the fact that China’s rare earths are also largely exported – at least half – in the form of finished goods for which there are no quotas and no export taxes. Therefore, jack suggests, we in the West “are the ones slowing down the market.” He notes that exports of consumer goods, which account for 98% of the value of rare earths, have dropped sharply, which has forced the Chinese to reduce production. China has also become much more serious about tackling environmental pollution and “the way you repair a leaky faucet is to turn off the water; so the Chinese are slowing down to see what they have to do”.
Tracy observes that Baotou’s revenues fell by 52% and profits dropped 72% compared to the same period in 2013. Tracy quotes a Baotou manager who blamed the decline on fear that the WTO ruling would force China to export more rare earths, causing prices to drop further. Tracy, rightly, questions this logic. “Would it not be the other way around?” she asks. Jack suggests that that upon first reflection he agrees with Tracy’s assessment; however, he notes, China does not want to sell rare earths for export at the Chinese domestic price. And it has all to do with the 25-50% export duties that China charges rare earth producers. The industry fears that the government could scrap the export duties, lowering global rare earth prices. But Jack doesn’t think this will ever happen: no self respecting government would reduce taxes, he suggests, bluntly calling Baotou’s claims, for lack of a more polite term, **.
Tracy also talks to jack about suggestions that China will be stockpiling more rare earths this year as it prepares to challenge the WTO. Jack insists that this is still a reflection of China’s major concern with the environment and a re-organization of the entire rare earths production system. Jack and Tracy also talk about Lynas Corp (ASX: LYC) and its final legal victory, on April 22, over efforts by the environmental group Save Malaysia Stop Lynas (SMSL) to revoke its license to operate the Lynas Advanced Materials Plant (LAMP). Jack and Tracy also discuss developments at Molycorp (NYSE: MCP) and Alkane Resources. (ASX: ALK | OTCQX: ALKEF), among other rare earth plays.
Tracy Weslosky is the founder and CEO for InvestorIntel Corp. (2001-Present), a leading online source of investor information that since 2001 has provided public market ... <Read more about Tracy Weslosky>