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Will Rare Earth Prices Stabilize as China’s Six Giants Dominate?
Posted on October 4, 2015 by Hongpo Shen
- See more at: http://investorintel.com/market-ana...nas-six-giants-dominate/#sthash.A35MRmeT.dpufChina’s spot rare earth price index, published by the Association of China Rare Earth Industry (ACREI), rose by 1.7 points to 110.6, showing a slight rebound in the country after a sharp decline that lasted six months. Before this small increase, the Index had plunged 28% from the highest level of 151.4 on March 23rd this year to 108.9 on September 17th.
Chen Zhanheng, Deputy Secretary-General of the ACREI, attended the Argus Rare Earths 2015 Conference in Shanghai in mid-September, and said, “The current Chinese rare earth prices have continued to decline to their lowest levels since 2011, but space is limited, and the prices will stabilize after China’s six major state-owned rare earth groups complete the integration of small mines and smelting companies by the end of 2015.”
China’s economic problems are worse than we expected and are crushing other markets. Earlier we looked at how this is impacting China’s exports. However, the demand for rare earth metals within China is seen growing at a steady pace.
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“Demand for rare earth ores within China will grow steadily in the next few years. The domestic consumption of rare earths is expected to increase nearly 8.3% this year to 97,700 tons, and is estimated to reach nearly 150,000 tons in 2020, rising 50% from about 90,000 tons in 2014,” according to Chen Zhanheng.
Professor Dudley Kingsnorth is the executive director of the Industrial Minerals Company of Australia and a Professor at the Curtin Graduate School of Business at Curtin University in Western Australia. He also was at the Argus Rare Earths 2015 Conference. He said that the world’s demand for rare earths in 2015 was expected to reach nearly 146,000 tons (including 97,000 tons in China and 49,000 tons in the rest of the world) while the supply is expected to reach nearly 195,000 tons (including 105,000 tons in China’s official channels plus 40,000 – 45,000 in China’s black market, and 38,500 tons in ROW). Looking forward, he estimates global demand for rare earths to reach 210,000 tons in 2020.
Looking only at August, China exported 13,216 kilograms of dysprosium oxide, mainly to Vietnam (10,000 kilograms) and Japan (2,886 kilograms), representing a surge of 1015% year-on-year, and 4,101 kilograms of terbium oxide (to Japan, 2,701 kilograms and to France 1,200 kilograms), being a 577% increase year-on-year. Then stepping back for a broader look at the first eight months of 2015, China exported 47 tons of dysprosium oxide and 24 tons of terbium oxide, up 565% and 327% respectively, when compared to the same period last year. These soaring exports of China’s dysprosium and terbium evidence that illegal mining remains rife in China’s rare earth industry at present, with this illegal mining filling the critical shortage created by China’s production quotas imposed on dysprosium and terbium.
Beijing policymakers aim to further tighten their control over the domestic rare earths industry while stabilizing rare earth prices through the six major state-owned rare earth giants. However, I don’t think rare earth prices are going to stabilize in China as long as there is a huge illegal production hanging over the market. The current rebound in pricing in the first paragraph above is due to a decrease in supply for rare earths from official channels. This decrease in supply is because most of China’s major rare earth smelters have been running at a loss recently and have been forced to halt production. Less official supply means more demand means temporary higher prices. It’s hard to say if supply from those illegal producers will depress rare earth prices further when (or if?) the legal producers resume production. We think so because smuggling, illegal mining, illegal production and illegal trading will continue and will supply the market.
For rare earth prices to stabilize, the illegal rare earth production and smuggling from China are still critical factors. However, for Beijing authorities, there’s no effective solution yet.
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Will Rare Earth Prices Stabilize as China’s Six Giants Dominate?
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