EDITOR: | July 4th, 2013 | 6 Comments

Chinese quotas are good news for REE prices but no substitute for economic growth

| July 04, 2013 | 6 Comments
image_pdfimage_print

REE-China-290x300Rare earths are essential for manufacturing mobile phones and computers, but China has restricted their export volume for years. Now the People’s Republic has announced the export quota for the second half of 2013 and it will be 15,500 tons according to the Ministry of Commerce in Beijing. This means that demand, or at least the level of demand that China is willing to support, has not changed since the first half of 2013, during which 15,501 tons were exported, bringing the total for the year to about 31,000 tons. Nevertheless, the export quotas are adding ‘confusion’ to the perception of market demand for rare earths because China has not even come close to meeting the quotas. In 2012, China exported about 16,265 tons of rare earths, which is merely half of the approved 30’966 tons. Of these, light rare earths represented 13,821 tons, or about 85%, and the remaining 1,679 tons, or 15%, were heavy rare earths. For years, industry groups have groaned because of impending shortages of crucial REE materials, transferring the problem to the international political arena, as politicians in Europe, the United States and Japan have brought up the issue of Chinese REE quotas before the World Trade Organization.

The raw materials were classified as critical, prompting a new ‘season’ of exploration for alternative sources of REE, the mining and processing of which has not always proven to be economically lucrative or even viable. Meanwhile, China claims to have been targeting the smuggling of raw materials and illegal mining, citing the many environmental problems associated with such practices. At the same time, China is also trying to shift away from mining to promote its processing capabilities and it has been trying to persuade others to process rare earths in China. At the same time, China itself has become the largest consumer market in Asia for raw materials, and its tighter export policies also reflect the stronger internal demand: some 50% of total production is needed there. China may well end up becoming an importer of REE’s once the new mines that are being developed in North America, Australia, Europe and Africa come on line. In the short term, certainly, China will have some supply problems. China’s largest rare earth producer, Baotou Steel Rare-Earth must shut down one of its processing plants for six months. To what extent this will affect the price is still unclear, but, as noted in the past few weeks, Chinese REE prices have increased by some 10% on average due to the tightened government policy.

The new measures could contribute to a further increase. They could also contribute to increased demand and prices after reaching a two-year low. One of the reasons for the lower prices was, in fact, that the 2012 export quota of 31,000 or so tons was not even close to being exhausted. This year’s quotas, actually higher than last year and the highest since 2009 according to the Director of the China Center for Energy Economic Research at Xiamen University in Fujian Province, even if the stagnant global economy would suggest that exports of rare earths are likely to be significantly lower than the quotas themselves. Chen said that the actual quantity of exports will be higher this year than in 2012 as the lower prices have boosted demand in the main consumer countries. The main customers of rare earths are the U.S. and Japan, whose economies have started to recover even if in spurts. Chen Zhanzheng, deputy secretary general of the China Rare Earths Industry Association hinted that Japan’s dependence on imports of rare earths from China has increased and will likely continue to increase as the Japanese reserves steadily.

Chen added that in 2012, Japan consumed 14,470 tons of rare earths and that it would consume even more this year. While it is still too early to shoot fireworks in celebration, the Chinese REE quota trends and official Chinese government predictions open a glimpse of optimism for Molycorp and Lynas Corp (ASX: LYC | OTCQX: LYSDY) – shares of which increased or remained steady throughout the past week. Indeed, while Chinese quotas and crackdowns by themselves will help stabilize REE prices, a sustained increase will occur only in response to steady economic growth in the main REE consuming markets.


Editor:


Copyright © 2016 InvestorIntel Corp. All rights reserved. More & Disclaimer »


Comments

  • J. Best

    Great article. I guess I am wondering if this is the lift the REE sector has been looking for?

    July 4, 2013 - 4:22 PM

  • Bob M

    Good stuff, Alessandro. I hope to see you do a monthly analysis of the exports soon. I think we can all learn a lot from looking at monthly stats, especially with the renewed hope of a change in the market.

    July 4, 2013 - 8:58 PM

  • Bill Keenes

    Alessandro, I have also read elsewhere that a contributing factor to increased demand is also the run down in rare earth stockpiles in places like Japan, ….. is perhaps the reason for Japan’s imports of rare earths from China having increased.

    Interesting you stated:- ” … prompting a new ‘season’ of exploration for alternative sources of REE, the mining and processing of which has not always proven to be economically lucrative or even viable” ….. That appears to be part of the bigger picture Chinese strategy in bringing on rest of world suppliers.

    In relation to China targeting the smuggling of raw materials and illegal mining – I have heard unconfirmed reports that 2 illegal miners have been executed. If true it would appear that finally the Chinese may be getting serious at putting an end to illegal mining.

    Success in bringing an end to illegal mining should be reflected in continuing increases in the prices of REE – especially HREE

    July 5, 2013 - 2:23 PM

  • riki
    July 6, 2013 - 2:59 PM

  • David Mortimer

    This is one of the reasons that the Chinese have been trying to get their hands on Kutessay 11 in Kyrgyzstan which is owned by Stans energy , the continuos harassment of Stans by them and corrupt politicians is a disgrace.

    July 8, 2013 - 6:26 PM

Leave a Reply

Your email address will not be published. Required fields are marked *