China rare earth exports on the rise
China is exporting more rare earths – but importing fewer permanent magnets, suggesting that the country’s production of those magnets is rising sharply. That’s the conclusion analyst Melanie Debono of London-based Capital Economics reaches in her latest note on rare earths.
(Melanie doesn’t mention illegal production and exports, but bases her analysis on official figures.)
She found that China’s total rare earth element exports were lower in January and February than they were in December due to the Chinese New Year holidays. But that is not the point: even though down a little on the last month of 2015, the exports in the first two months of 2016 were still higher than average monthly export volumes since 2012. Moreover, “in the three months to January, exports of all REE rose sharply compared to the same three months a year earlier”.
And highest on China’s REE export list was lanthanum.
According to data released Tuesday, China exported a total of 3,240 tonnes of rare earth elements in February. That compared with exports of 4,013 tonnes in January and 4,838 tonnes in December. The figures for the first two months were always expected to be lower because of companies closing their doors – they can bolts the doors for longer than the official New Year holiday itself (sometimes two weeks in advance and a week or more after the holiday). But, if Capital Economics averages the January and February data to eliminate the New Year holiday distortions, export growth year-on-year for those two months accelerated by 107% (year-on-year).
As Debono explains, since China axed its REE tariffs in May 2015, monthly export volumes have consistently been higher than the average since 2012. “It is therefore clear that this (the abolition of tariffs) has boosted REE demand,” she adds. But it is a little more complex that that: the export volumes in the first two months of the year were 40% higher than in May 2015. However, the money received by the Chinese was 20% lower, due to the strength of the US dollar and falling REE prices.
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The other factor examined by Capital Economics was China’s exports of permanent magnets, the second largest consumer of REE after glass production and polishing. These exports were lower in January than in December but were still high by past standards. Meanwhile, China’s imports of permanent magnets continued to fall sharply. As Debono sees it, this seems to reflect growing domestic production rather than a fall in demand.
“Looking ahead, we expect a policy-driven rise in domestic demand in China this year which should be positive for REE demand. Coupled with a rise in demand from elsewhere, this should help REE prices to recover,” she concludes.
In a separate note out from Capital Economics, Julian Jessop, the head of commodities research, looks at silver. Why has its price not risen as quickly as gold’s? Jessop believes that silver may simply have recoupled with the prices of more conventional industrial metals rather than with gold. After all, as he notes, industrial uses account for more than 50% of the demand for silver, as opposed to less than 10% in the case of gold’s consumption.
I have made the point several times that silver has a unique problem: that is, it was equally a precious metal and an industrial metal. But now the scales may be tipping more and more to the industrial uses side, and this is being driven partly by silver’s fast growing role as a technology metal, those uses ranging from solar applications to health applications (its antimicrobial properties seeing its use in bandages and medical equipment) and in such areas as water purification technologies.
Sure, it will still have a big role as a precious metal and appeal to investors. But I suggest that, as the years pass, that appeal may diminish as it becomes more and more an industrial/technology metal. In times of economic downturn, that puts silver as a greater disadvantage in precious terms with the appeal of gold.
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