By Stuart Burns
China’s efforts to rein in illegal mining among the rare earth sector at least appear to be having the effect of raising prices, slightly.
A crackdown on the production and sale of rare earth concentrate in 2012 reduced production by some 30,000 tons, according to RareEarthInvestingNews, but prices are still too low for many companies. The ChinaDaily reported that of 32 listed rare earth producers, total first-half earnings fell 46.6% to 2.9 billion yuan ($473.8 million), plunging five of the companies into a loss, while the other 27 made markedly lower profits than in 2012.
Even Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech, the country’s largest producer, said revenue fell 23.3% in the first half, while net profit declined more than 33 percent. The firm had to repeatedly suspend production at some facilities to support prices this year.
Apparently low rare earth prices are impacting Lynas Corporation (OTCPK:LYSCF), which began refining rare earths in Malaysia shipped from its Mount Weld mine in Australia. REIN reported that Lynas has “set a minimum price schedule” to come into effect July 1. The article states that current prices of $16 to $20 per kilogram are 25% below the minimum level for producers and are not sustainable. Lynas Corp. said the company will try to persuade its mostly Chinese customers that they should lock into long-term contracts to guarantee supply, even though that would mean paying above-market prices. (Good luck with that, Lynas!)
Not only has Beijing tried dissuading illegal mining, but it has tried soaking up excess production. Various government agencies are reported to have stockpiled 10,000 tons over the last year. But with China’s southern provinces producing at least 37,000 metric tons of heavy rare earth minerals last year, more than double the 13,400-ton output quota set by the government, according to Bloomberg, there is clearly a considerable amount of work still to be done.
Non-China Rare Earths Supply Will Be Key
Future price direction, though, may be less about what happens inside China than what happens outside, according to Zhang Anwen, deputy secretary-general of the Chinese Society of Rare Earths, who said global consumption last year was just 100,000 metric tons. But rare earth projects outside China have already reached an annual production scale of nearly 70,000 tons.
Over the next few years, emerging production capacity outside China and technology that can replace the need for rare earths will weaken the world’s dependence on China, and that’s from the horse’s mouth.