Apr 12, 2015

China still distorting the rare earth market | InvestorIntel

It has been a few years since China set its sights on clamping down on illegal mining and exporting of rare earths. And the result? It seems the problem has got worse, not better.
According to Dudley Kingsnorth, REE expert and now professor at Curtin University in Perth, Australia, some 30% of neodymium being sold in China is moving through the illegal channels. One in three magnets contains illegally obtained rare earths. In China, illegal magnets are selling at half the prices obtaining in the official market. The result is twofold: rare earth prices are being suppressed, and the whole REE market is being distorted, with obvious impacts on those trying to get projects up outside China.
Alkane-125And, in another conversation I had this week, Ian Chalmers of Alkane Resources (ASX: ALK | OTCQX: ANLKY) expressed a few concerns about the impact of the China situation on the global REE industry. He considers that both Japan and South Korea have a false sense of security about REE supplies in the light of the World Trade Organization ruling. They think the REE supply problem has gone away. But, in his view, the new export licensing system and China’s planned introduction next month of a new resource tax will see supply to the rest of the world reduced rather than eased.
In the short term, Japan is taking advantage of the availability of illegally mined and exported rare earth elements to get around Chinese restrictions, especially on the elements vital to magnet manufacture. Ian Chalmers agrees with the assessment that some one-third of rare earths mined in China is being produced outside the official system. He is concerned that, if China does start moving against the illegal mining, ready availability of praseodymium, dysprosium, terbium and neodymium could dry up in as short a time as 12 months.
No one can say for sure whether China will move on the issue of illegal mining. But, given the measures Beijing has taken in recent years to conserve its reserves of strategic and technology metals, it seems strange that the illegal REE sector seems to have got so far out of hand. After all, in January we saw Chinese officials make arrests concerned with smuggling of magnesia out of the country and destined for a South Korean steel maker.
Moreover, with China intent to develop downstream products from its REE output, why allow Japan and others access to those elements and compete with China in the value-adding field?
As Kingsnorth points out, the Chinese rare earths magnet industry demand for praseodymium and neodymium exceeds the production quotas by 10,000 tonnes, effectively condining illegal mining and processing. He adds: China is moving too slowly to eliminate illegal production. In a recent presentation, he quotes a senior official from the China Rare Earth Industry Association telling a conference in Chengdu that illegal mine output accounts for between 40,000 and 50,000 tonnes a year of rare earth oxides.
Last August China launched a program to stockpile rare earths. The stockpiling was expected to push up domestic prices – after all, the targets were 4,000 tonnes of praseodymium/neodymium oxide, 500 tonnes of Nd oxide, 1,200 tonnes of dysprosium oxide, 300 tonnes of erbium oxide, 500 tonnes of europium oxide, 500 tonnes of terbium oxide, 2,500 tonnes of yttium oxide and 90 tonnes of lutetium oxide.
But Dudley Kingsnorth comments that prices have not appreciated to any degree in 2014 and 2015. To date the increases have been minimal.
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Then there is the question of prices and profitability. Beijing has pressed on with the plan to merge all REE operations into six corporate entities. But just last week two of the more significant miners reported sharp falls in their 2014 profits. They blamed poor demand and weak prices – both of which factors reinforce the concern about the scale of illegal production. REHT saw a 57.4% plunge in its bottom line compared to the 2013 result; at least it stayed in the black, if only to the of equivalent of $102 million. China Minmetals Rare Earth Co posted a loss, its revenues falling by 64.8%. As Xinhua reported, rare earth prices are at a multi-year low despite a slight rebound at the end of 2015. Xiamen Tungsten also reported losses for 2014 in its rare earth division.
These are three of the six merged entities, the others being Aluminium Corp of China, Guangdong Rare Earth, and China Southern Rare Earth Group.
So far as Alkane is concerned, Chalmers says he is not locked into supplying any customer once the Dubbo project is in production (he says now that will be 2017). He sees European customers still keen not to be beholden to China. In addition, Alkane will be able to compete with Chinese pricing structures (Alkane using the Chinese denominated spot price in its calculations)
- See more at: http://investorintel.com/technology-metals-intel/china-still-distorting-the-rare-earth-market/#sthash.DhTGFz7e.dpuf

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