In contrasting strategy, China to ramp up REE output to regain pricing control

VANCOUVER (miningweekly.com) – The Chinese government is expected to ramp up rare earth element (REE) exports in a bid to regain control of pricing policy, a new report by market intelligence firm BMI Research has found.

This is expected to be a reversal from the government’s previous export-restrictive strategy to control prices.

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Rare earth metals are ‘critical’ raw materials, which are used in a divers e number of sectors, including electronics, telecommunications and automotive.

Over the last two decades, China has maintained a virtual monopoly on REE output. According to BMI, during 1999 to 2015, China’s share of global rare earth output accelerated rapidly. In 2015, China’s REE output totalled 105 000, accounting for over 90% of global output, with other countries, accounting for just 19 000 t during this period.

PREVIOUS POLICIES
Between 1990 and 2015, China’s policy by default of ramping up rare earth output, developed later into a deliberate policy of increased REE pricing power. Between 1990 and 2000, China’s rare earth output grew by 450% to 73 000 t. Over this same period, rare earth output from other countries (Australia, US, Greenland, Malaysia and Brazil) declined by 60% to 16 000 t, down from 44 000 t in 1990. The latter countries’ decline was largely the result of decreasing margins on the back of an increasingly well-supplied market, researchers noted.

In 2006 China shocked the world when it suddenly imposed export quotas and duties for REE exports, and in 2010, the Chinese government decided to reduce the country’s REE export quota by 40%, which saw rare earth prices soar globally. The government stated that the 2006 quota was to conserve the country’s environment and limit the depletion of critical resources.

Despite more than 28 World Trade Organisation (WTO) members imposing export restrictions on certain metals and minerals during the previous decade, BMI found that there is some international concern that China’s control of the rare earth market and restrictions on exports can be used as a political weapon.

Subsequently, the US, joined by the European Union and Japan, brought a case to the WTO’s dispute settlement body against the Chinese REE export restrictions in 2012. China’s case was brought forward to the WTO, which ruled against the policy in 2014.

On January 1, 2015, after losing its battle in the final ruling in the WTO, China ended the country’s 16-year-old REE export quota system, and on May 1 last year eliminated export tariffs on REEs, including tungsten, molybdenum, iron and steel particles and other products, as part of the ruling ‘s requirement.

This resulted in China losing rare earth production market share to other producing countries, including the US, Greenland and Russia, BMI stated.

NEW WTO CASE?
BMI expects that in a bid to regain pricing power, the Chinese government will pursue a strategy of consolidating the country’s domestic rare earth sector and increasing exports over the coming quarters.

“We believe the Chinese government will pursue a strategy of increasing supply in order to push down prices, which will put pressure on overseas miners’ profit margins.

Since the export tariffs were removed, Chinese rare earth exports have consistently been higher than during the period beforehand, BMI noted.

The strategy has resulted in rare earth prices falling drastically over the las t 18 months. Over 2015, export prices from China’s Inner Mongolia region fell by 30% compared with 2014, while China’s total export value of rare earths decreased by over 40% over the same period.

Among the hardest hit have been dysprosium and cerium, which saw prices fall from $65 865/t and $883/t, respectively in May 2015, to $37524/t and $685/t by September 2016, respectively.

While domestically this has accelerated the government’s consolidation drive, it also proved a major challenge for producers operating in countries including Australia and the US. The most notable example occurred on June 25, 2015, when US-based REE producer Molycorp filed for Chapter 11 bankruptcy.

While the firm had been operating with losses since 2011, the low-price environment exacerbated the firm’s struggles; the miner was able to previously maintain operations as the company was deemed a key alternative supply channel for the US, other than China.

In light of China’s new approach, BMI expects another trade case to be presented to the WTO by the US and other major rare earth consumers over the coming quarters.

BMI believes that Australia, Russia, Greenland and the US hold significant rare earth output growth potential over the long term. Despite this, the analysts do not expect that these countries will be able to overtake China’s market share any time soon, owing to China’s strategy, which has resulted in the current low rare earth price climate.

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