Not Just Beijing’s Doing: Market Factors Are Also Hitting Rare Earths Prices
A report in Nikkei Asia last week highlights the pain that low prices are causing Chinese state-owned companies. The largest rare earth miner, China Northern Rare Earth (Group) High Tech, is facing a 95 percent fall in half-year profit, while other major state-owned rare earth groups, including Shenghe Resources, China Rare Earth Resources and Technology and Rising Nonferrous Metals are suffering steep losses. Rising Nonferrous Metals attributed its losses to the ‘drastic slide in sales prices of its major rare-earth products.’
New draft regulations to govern the Chinese rare earths industry, which were published at the end of June and take effect from October, provide ammunition for both sides of the argument. The new regulations assert the state’s control of the industry, saying its goal is to ‘ensure national resource security and industrial security’.
‘No organization or individual may encroach upon or destroy rare-earth resources,’ and those who manage them ‘shall implement the lines, principles, policies, decisions and arrangements of the Party and the State.’
While western rare earth miners like Tom O’Leary claim they are up against the national security priorities of the Chinese state, the new regulation makes this explicit. It is a stance which justifies the Australian government’s direct intervention in providing funding to develop an industry that is independent of China. It also justifies Australian resistance to Chinese efforts to control Australian rare earth deposits.
On the other hand, the assertion of rights of the state in the new regulation reflects the failure of central planning. Eight years’ strenuous effort to stamp out illegal small-scale rare earth operations in southern China, which until 2016 accounted for a quarter of China’s production, has had only mixed success. Chinese media coverage of the new regulation acknowledged it was still a problem.
The new regulation includes draconian penalties for illegal mining, smelting, distribution and international trade of rare earths, and it orders miners to trace where their sales go.
It also tackles imports. China relies on imports for about a quarter of its supply, much of which comes from essentially unregulated operations in Myanmar, often smuggled across the border.
Bloomberg notes that the new regulation bans rare earth refiners from producing more than their government-set quota using imported raw materials. It cited an analyst saying the result could be a 20 percent reduction in China’s supply of rare earth oxides, providing support to rare earth prices.
According to the new regulation, the quotas for mining and refining of rare earths would be determined by factors including the resources’ reserves, industrial development, environmental protection and, significantly, market demand.
The problems of the rare earth industry resemble those confronting Chinese industry generally: the drive to boost production to meet official targets, regardless of demand, results in big surpluses. It is true of electric vehicles, batteries and solar panels as well as industries producing food, chemicals, textiles and pharmaceuticals. Markets seldom obey the dictates of central planners.
David Uren is an ASPI senior fellow. This article is published courtesy of the Australian Strategic Policy Institute (ASPI).
