Metal Events Insights: China continues to crack down on illegal REE mining-Boosts Prices

The Chinese government’s determination to clamp down on the illegal mining of rare earths has had a major impact over the past year on supply, which has boosted prices. While plant inspections to find illegal activity were expected to run from December 2016 to April 2017, the actual progress is “set to be long term and non-stop”, according to Du Shuaibin, senior analyst at Baiinfo in China.

The big question remains whether this will continue to sustain rare earths prices in the long run? Qu Xiaohong, an analyst at Ruidow, said: “First, what decides market prices will always be the supply and demand balance. The illegal mining crackdown plays a significant role supporting prices but it’s not the main factor and its influence is limited. What’s essential is demand from the market.”

The price hikes witnessed in recent months have certainly caused consternation in China both for the rare earths downstream consumers as well as the authorities.  There is concern that the hype and froth of 2010-2011 when prices for rare earths rose unabated and then the declines of the past few years, should not be repeated. The government is therefore calling for China’s rare earths industry to develop in a stable manner that supports producers and end-users.

The 13th Five-Year Plan (2016-2020) ranks rare earths as one of sectors which requires capacity reductions along with other metals including steel and aluminium. The plan requires a one-third reduction in smelting and separation capacity by cutting 200,000 tonnes of rare earths ores annually until 2020, according to state newspaper China Daily. However, as illegal mine production has accounted for about 30% of the country’s total annual rare earths production, without an ongoing significant reduction it is hard to see how much this may achieve in the long term if not maintained.

Through the government’s policies, rare earths production has improved from the previous “dig and deliver” situation. From January to March of 2017, China’s rare earths industry increased its income by 21% year-on-year, with profits rising by 29% year-on-year. As of the end of April, lanthanum oxide, neodymium oxide, terbium oxide and other product prices had grown by 35%, 5% and 31% respectively year-on-year.

To maintain the healthy development of the rare earths industry, China’s eight ministries, including the Ministry of Industry & Information Technology, launched inspections at the end of last year. The illegal mining inspections initially covered a total of eight provinces and regions, including Inner Mongolia, Heilongjiang, Jiangsu, Jiangxi and Guangdong as well as Fujian.

Guangdong: On December 26 2016, Guangdong confiscated 30 tonnes of illegal rare earth minerals.

Northern China: In first-quarter 2017, North China cracked down on illegal rare earths mining and maintained this beyond March. Most small mines in Gansu and Baotou were closed.

Fujian: The Public Security Bureau and Land & Resources Bureau closed one large illegal rare earth mine in Longyan City on May 12, confiscating two vehicles and two motorcycles used to transport rare earths, and more than 30 bags of rare earths were confiscated. But the suspects escaped.

Jiangxi: In June, Jiangxi Provincial Ministry of Industry & Information Technology issued an emergency notice cracking down on rare earth illegal activities in the province. They collaborated with related departments to inspect Jiangxi rare earths enterprises one by one, banning enterprises mining without permits and punished enterprises for issuing false invoices to evade tax. On September 19, measures were further strengthened to restrict production and strictly control the import of raw materials.

Inspections for illegal rare earths mining by China’s Ministry of Industry & Information Technology have reduced rare earths output as many mines have been forced to close. By May this year, the crackdown had spread to 415 enterprises in 23 provinces and areas. From January to July this year, praseodymium neodymium oxide production decreased significantly from 2016, with more than a 20% decline in June and July. It is predicted that the surplus of China’s rare earths ore will be reduced over the next two years as a result.

The major issue for China’s industry, however, has been the startling rise in rare earths prices this year as falling output has combined with stock building by China’s State Reserves Bureau. For example, according to SMM, in the second quarter of 2017, “production at mining companies in northern China was interrupted, with limited capacity releasing. Supplies of cerium mischmetal remained tight. Demand was steady. In this context, cargo holders held back goods, driving up cerium mischmetal prices.”

Similarly, prices for Pr, Nd and terbium rose significantly from June as illegal mining inspections reduced output, while downstream orders were stable.

However, the price rises have had an impact on domestic consuming sectors which are struggling to bear the brunt of the increases. Since June 1, rare earths prices have accelerated with praseodymium neodymium oxide rising by 17.4% from 298,000 yuan/tonne to 350,000 yuan/tonne in July. Praseodymium neodymium metal prices also increased by 19.4% from 377,000 yuan/tonne in June to 450,000 yuan/tonne in July before settling back. Praseodymium and neodymium products are the most important raw materials for permanent magnet manufacturers, accounting for about 20-70% of the cost of NdFeB products. The price rises therefore have proved burdensome to downstream consumers even though the summer months have seen prices soften.

“It is understood that the average profit margin of the rare earths permanent magnet industry in 2016 was 5-6%. The accelerated price increase has greatly increased raw material costs for the rare earths permanent magnet industry, bringing intense pressure to the production and operation of NdFeB enterprises,” Chen Zhanheng, chairman of the China Rare Earth Industry Assn, said at the Magnet Seminar in Beijing on 11th July.

Author: By FAN LI
Date: Sept 26th, 2017



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