The WTO lawsuit is expected to reach a verdict at the end of this year. Members of the Chinese Society of Rare Earths (CSRE) and Association of Rare Earth Industry (ACREI) have expressed that China has a high chance of losing the lawsuit and which will lead to substantial changes in policies towards exports.

“The loss of the lawsuit means that China will lose their quota policy and the government will no longer be able to restrict enterprise export conduct,” remarked one expert in the field. “Speaking from experience, price competition is inevitable.”

At the same time, unrestrained expansion of production capacity and weakened application for rare earth metals domestically has made this once blossoming industry sink into decline. Where the industry had once placed their hopes on this domestic market, after two long years of unstable prices it has begun to wither.

Elimination of Quota Will Reduce Price Drastically

In the August 11th meeting of Ganzhou Rare Earth, one of the main topics for discussion aside from industry analysis was on how to control the excess in production capacity. The litigations of the case are still kept secret. In 2009, the EU issued a request for China to lift their export quota on rare metals. In 2010 America, Mexico and other countries submitted a memorandum to the WTO demanding China eliminates the export quota that still remained in place. In 2012, America and the EU officially filed a lawsuit against China.

Experts within the industry remarked that the impact caused by the elimination of the export quota has the possibility to cause a significant reduction in price for rare earth minerals.

CSRE assistant secretary general Chen Zhanheng explains that a yearly quota of 30 thousand tons had caused the current surplus since in actuality only 10 thousand ton are sold.

It is important to acknowledge that there is a large domestic surplus of rare earth smelting and separation. Ganzhou Qiandong Rare Earth Group chairman and managing director Gong Bin told reporters that there is a current surplus of 100 thousand tons of smelting and separation for rare earth found in southern China, and the biggest producer in southern China is Jiangxi Providence with a production target of 3950 tons for 2013.

“Our production capacity is around two to three hundred tons, but with a target of only a dozen or so, it just too insufficient,” remarked a Jiangxi isolated enterprise official told reporters. Deficiency is a common occurrence which can lead to buying of back ore. “Right now there is not a strict policy with invoices. Black ore is abundant; so much that isolated smelting capacity cannot possibly become idle.”

According to ACREI secretary general Ma Rongzhang, 70 percent of ion ore from southern isolated smelting industries have unspecified origins. Statistically speaking, China has currently surpassed 200 thousand tons of rare earth, and each year only has sales of around 150~180 thousand tons. On top of that, the demand for the entire world is only around 130 thousand tons, 100 thousand of that being demand from China.

One member of CSRE who requests to remain anonymous has told reporters that even though rare earth supply pattern diversification trend is becoming increasingly apparent, “however if the export quota and duty tariff are eliminated, Chinese rare metal prices will suffer a drastic decline, possibly destroying other countries’ rare earth product chains.”  

Early last year when reporters learned of this event, an expert from the national administration organized expert-level discussions and predicted that the impact from the elimination of the rare earth export quota policy will be long lasting, but before it happens it is important to straighten out the production order domestically to prevent chaos.

Gong Bin believes that from the aspect of ion from southern China, central enterprises and local state-owned corporation’s production capacity has reached 78.5 percent, close to the 80 percent demand the government has given for large-size enterprise groups.

「However, the current 80 percent is the amplified version which doesn’t tally with the State Council’s original intent. If production capacity has no expansion limitations, then controlling it is pointless and a waste,” Bin said.

Officials from the Ministry of Commerce stated that the rare earth lawsuit is still kept in secret proceedings and cannot be made public at this time. However, officials said that in order to solve the rare earth export and excess capacity, it must not simply rely on government policy but that industries themselves need autonomy.

Industry Recession

According to ACREI statistics, the output of the three main applied materials in 2012 declined slightly with magnetic yield of 78 thousand tons, 4,500 tons of luminescent materials, 8,200 tons of hydrogen storage materials all down about 11.9 percent, 43.8 percent, and 34.4 percent respectively. Non-mainstream application catalysts meanwhile rose slightly.

ACREI worked out the rare earth price index to of dropped from 234.1 in December of 2012 to 153.8 on July 3rd, with a decrease of 52.2 percent. Afterwards there will be a rise of 19.6% by August 5th.

However, Ma Rongzhang still expressed that although future prices for chemical elements Pr, Nd, Tb, Dy, and Eu will raise to meet 100 percent, it will not be able to make up for the withering market.

Research Institute for Nonferrous Metals rare earth luminescent materials expert Zhuang Weidong told reporters that current downstream applications of rare earth, aside from magnetic material relative prosperity, luminescent materials and hydrogen storage materials are in a slump. “LED luminescent material has felt a large impact, and hydrogen storage material is facing pressure from lithium batteries.”LED and lithium battery industry growth rate is faster than originally anticipated.

However, the prosperity of the magnetic field is currently facing pressure from Japanese patented technology. Japan’s Hitachi Metals official website announced that the company has over 600 applications for NdFe8 globally. The Hitachi Metals announced this year in addition to already authorized Zhong Ke San Huan, Yunsheng, Beijing Jingci Magnet and other industries, they will not longer give licenses to other Chinese enterprises. Hitachi Metals filed complaints against Chinese enterprises in the U.S. which in 2012 launched the section 337 investigation.

Chinese enterprises that experience patent extrusion have organized resistance with more than a dozen medium-sized rare earth sintered NdFe8 enterprises forming a business alliance. Every company contributed US$ 1.5 million to prepare for the U.S. prosecuting on behalf of Hitachi Metals.

Ma Rongzhang in Ganzhou proposed to open up new fields of rare earth application. An example is that every year China has a surplus of 30,000 to 50,000 tons of lanthanum and cerium rare earth minerals. If rare earth catalysts are able to push open the market, then the surplus products can be partially digested.

However, Professor Dr. Huang Xiaochun from Japan Hirosaki University faculty of humanities pointed out that from the 1970s to date, there have been no revolutionary technological breakthroughs in the applications of rare earth minerals. This in turns reduces the possibility for explosive growth in demand for rare earth. He believes that the weak demand for rare earth from overseas markets is due to prices curbing and also from technical bottlenecking caused by natural decrease.

Supply Trade-off

In the context of a weak downstream, China’s rare earth raw material supply position was again looked at with importance. Since the 1990’s, after the closing of Molybdenum Corp. of America’s (Molycorp) rare earth production line, China in the world’s rare earth supply ratio stabilized at 90 percent and above. While according to the U.S. Geological Survey’s investigation, China’s rare earth reserves made up 36 percent of the world’s total reserves, but have been declining.
After 2009, due to China’s rare earth industry consolidation and environmental management, the world’s rare earth supply diversification began accelerating.  According to the U.S. TMR company’s tracking research, in recent years the 261 companies in the United States, Canada, Australia, India, Brazil, Vietnam, Mongolia, South Africa, Russia and other 37 countries have engaged in 429 rare earth projects. However, currently with the vast majority of these companies still in the exploration stage due to decline in rare earth prices, the progress of these projects have experienced differing degrees of impact.

President of the European Rare-Earth and Actinide Society professor Jean-Claude Bunzli said: “Many countries have rare earth. It’s completely reasonable for rare earth to be used in local production. A certain location’s resources should not always be “trekked” around everywhere. “

The outside world’s confidence mainly lies with rare earth projects being conducted by Molycorp’s principle asset Mountain Pass Rare Earth Mine and Lynas, both of which will begin increasing the supply of rare earth, which in the future will involve heavy rare earths.
Dr. Xie Peijun from the United States Geological Survey told reporters that in 2012 Molycorp had already begun to contract enterprises to initiate light rare earth supply.

“By comparing data, it is clear that in 2013 the entire global market for rare earth might have a shortage in supply. However, after 2014 there will be a reverse of this situation. Consumer businesses can seek comfort in the diversified supply channels. Western rare earth production capacity proportions are increasing,” said managing director of Metal-Pages Nigel Tunna.

A member of a group of experts at the National Development and Reform Commission and a senior professional engineer at China ENFI Engineering Corporation, Zeng Tianyuan proposed that if China set its rare earth supply at 70 percent, this would stabilize China’s industry and satisfy world demand. “The positive of 70 percent capacity is the reasonable price for Chinese and overseas rare earth industries which will promote stabilization in the market.”


Reference

Chinese Rare Earth Material Conservation Policies