Rare Earth Metals: A China Price

Today's Wall Street Journal has an article entitled: "China Starts New iron-Ore Talks." The article brings up the possibility that the Chinese market, the world's largest, by far, buyer of iron ore, may well be serviced with a "China price." This would be a price lower than that charged by the cartel of iron-ore miners, Anglo-Australia's BHP and Rio Tinto (RTP) and Brazil's VALE, which controls 70% of the world's iron-ore production, to its largest customers outside of China.

I am predicting that this "China pricing" will indeed come into being, and that China will reciprocate by bringing into being a two-tiered pricing for metals within its control, in the production of which it dominates the world, the first of which could well be the rare earth metals. I predict that metals in which China dominates world production will be sold for la lower price within China that they are sold in the rest-of-the-world market.

A lower price charged to Chinese customers, producing products for the Chinese domestic market, for rare earth metals produced in China will mean that Chinese manufacturers of end use products critically dependent on the rare earth metals will be able to continue producing those products for the Chinese domestic market without a cost penalty. Any rare earth metals still exported from China or produced outside of China will be able to be sold for much higher prices in the non-Chinese market.

This dual pricing would mean that non-Chinese mining and refining of rare earth metals could be done profitably as it cannot be done now, because the current prices for rare earth concentrates at the mine face are too low for there to be any reasonable return on investment, by western standards, except for miners who now have high concentrations of the heavy rare earths and/or are vertically integrated, such as Canada's Great Western Minerals Group [GWG.V] and Avalon Rare Metals (AVARF.PK).

It would be very beneficial to the Chinese domestic rare earth mining industry for a dual pricing situation to come into existence for their products. It would mean that Chinese domestic rare earth production could be dedicated to domestic production of end use items for the home market without pressure from export markets, because it would enable the immediate economic development of non-Chinese rare earth mines to satisfy non-Chinese demand.

I predict that the first production of heavy rare earths by a non-Chinese producer will be offered into the world market at a substantially higher price than is obtained today for such products.

This will drive Chinese domestic production higher as Chinese miners move to shield their domestic market from the necessity of paying higher prices, and this higher production will produce some surplus for export at higher prices thus making Chinese mining more profitable.

Disclosure: None

Comments

[ACEMAN:]

Y'all got it half-right. China's massive inventory build up in iron ore is meant to leverage spot pricing and fix contract delivery prices while China's Sovereign funds are contracting for faster and cheaper delivery from NOBGF for example and South African and Brazil suppliers. The cost of the build up is monumental but it does provide leverage in negotiations with RTP and BHP. Lurking in the background and willing to deal via spot markets is VALE and AAUKY. Ain't life grand at the Cafe du Monde!

Nov 16 03:03 PM

[Positroll:]

" I predict that metals in which China dominates world production will be sold for la lower price within China that they are sold in the rest-of-the-world market."
Sounds easy. But imO its not in line with WTO rules. So what will stop other countries from retaliating by slapping on tariffs on chinese goods containing rare earths?
Anyways, I bought some shares of Alkane Resources (alk.ax) just in case ... (also a nice gold play)
www.theaustralian.com....

Nov 17 11:13 AM