China rare earth stocks 'on fire'

(ATF) At noon on Monday (March 1), Chinese shares related to rare-earth permanent magnets rose rapidly. At the close of trading nine stocks, including Northern Rare Earth, GEM, Baotou Steel and Taihua, had reached their daily limit. With the exception of Hongda Industrial, nearly 60 stocks in the sector followed the upward trend almost across the board. The main net inflow of funds reached 1.97 billion yuan (close to US$305 million).

The reason appeared to be remarks by Xiao Yaqing, the Minister of Industry and Information Technology, who was shown on CCTV telling a press conference held by the State Council’s Information Office, that at present rare earth elements are not sold at a “rare” price – they are sold at a “earth” price because of vicious competition.

His comments follow several months of nationalist spin that China sells its rare earth elements “like cabbages”.

Overall, there is a trend for building reserves and limiting exports because of the trade dispute with the US, and rare earths are seen as China’s ace in bilateral rivalry.

At the same time, rare earth companies have many environmental problems. In terms of technology, there are many low-level replications of bad practice, and the amount of high-level rare earth products is still relatively small, which is not conducive to technological innovation and technological progress, the minister said.

A-share rare earth stocks responded immediately after he made his speech. In Hong Kong, China-related rare earth stocks also surged 21%.

Rare earth prices are not “rare”

When answering a reporter’s question on the Rare Earth Management Regulations (Draft for Comment) issued in January, Xiao Yaqing said the purpose of issuing the regulations was mainly to regulate longstanding problems in accordance with the long-term development strategy and market demand of rare earths.

As for what the problems are, first of all, from nuclear reactors to space telescopes, high-precision fields and equipment need heavy rare earth elements. That makes those elements expensive and less replaceable.

China is a country with a large amount of rare earth resources, as well as the largest output and export volume.

But, as the Ministry has noted, the production of rare earths does create many environmental problems. Xiao Yaqing said that for the good of the rare earth market, mining hard, digging hard, and hard smelting will have a lot of impact on environmental protection.

Moreover, these are rare resources. Currently, there is disorderly mining and resource waste. For example, only the best and most accessible mining sites are exploited. A comprehensive utilisation of resources is very poor, and there will be many problems in the long run.

There has also been repeated instances of low-level rare earth development, and relatively few high-level rare earth products, which are not conducive to technological innovation and technological progress.

There are relatively few high-level rare earth products, which are conducive to technological innovation and progress.

Revaluation of rare earths

Aside from the minister’s remarks, changes in the rare earth sector have also driven the rising prices of rare earth elements.

In the past few rounds of rare earth price increases, the core driving logic has been the supply side, including the impact of events such as purchasing and storage, cracking down on gangs, and geopolitics. The current round of rare earth price increases stems from strong demand and the fact that effective supplies is limited. The Minister also noted illegal mining operations found across China.

The global supply of rare earths is relatively concentrated at present, with Myanmar having emerged as a rare earth source second only to China and the United States. With Myanmar currently hit by political chaos, that has reduced mine production and caused a suspension of production and exports, limiting the global supply level.

On the demand side, rare earths are known as “industrial monosodium glutamate” and “mother of new materials”. They are widely used in electronic information, petrochemical, metallurgy, machinery, energy and other industries. And they have attracted much attention because of their use in missiles, smart weapons, navigators, jet engines and other military high-tech applications.

At present, global demand for rare earths is mainly concentrated in industries such as traditional automobiles, new energy automobiles, wind power and inverter air conditioners. Other uses include energy-saving elevators, industrial robots, consumer electronics, and so on.

But their use in new energy vehicles is significant. Last year, the sales volume of new energy vehicles in China was 1.367 million units – 1.115 million electric vehicles and 251,000 plug-in hybrid vehicles. Sales of electric vehicles accounted for over 81%, while the remainder were hybrid cars.

The creation of 10,000 new energy vehicles requires about 47 tonnes of rare earth materials, nearly double what is used in fossil fuel vehicles. So, rapid growth in the output of new energy vehicles and electric two-wheelers, plus growth of long-term installed wind power turbines, and the boom in consumer electronics have driven the demand for rare earths.

China’s automobile sector is expected to need a further 75,000 tonnes of rare earth elements over the next five years. And that figure is tipped to rise to 140,000 tonnes given the expected demand for wind power, home appliances and consumer electronics.

At present, China’s annual production and consumption of rare earths is about 150,000 tons. This means that the country’s use of rare earths is expected to double over the next five years.

In order to prevent a shortage of rare earth supplies, the Ministry of Industry and Information Technology (MIIT) and the Ministry of Natural Resources recently issued the first batch of “total control” targets for rare earth mining, smelting and separation in 2021. They are 84,000 and 81,000 tonnes, respectively.

These two indicators increased by 18,000 tonnes and 17,500 tonnes respectively over the same period last year, both rising by about 27%, according to MIIT, the Ministry of Natural Resources and Zhongtai Securities Research Institute.

Supervision of the rare earth industry chain inventory is low, but the supply increase is controllable. Therefore, the original rare earth price increase brought about by the tight supply and demand pattern looks to have a strong sustainability.

Sector urgently needs a clean processing system

The MIIT believes China’s rare earth purification technology has reached the highest level in the world in recent year, and can compete with the “rare earth self-confidence” of the United States and Japan.

However, the ratio of the value of rare earth concentrates, new materials and components is generally 1:50:500. While exporting low-cost raw materials, China is also importing expensive final products. The United States, Japan and other countries mastered the core patents of rare earth permanent magnets as early as the early 1980s. Hitachi Metal’s patents block against Chinese rare earth companies may extend to 2038.

Counting from the time when Japan applied for the first rare-earth permanent magnet basic component patent in 1983, Chinese companies will have to pay patent licensing fees to foreign companies for at least 55 years in an industry that should have a huge resource advantage for China.

The mining and processing of rare earths is accompanied by huge ecological damage and chemical residue pollution. This is the reason why the United States shut down domestic rare-earth mines very early and began to rely solely on imports. Many other countries, such as Canada and Australia, have a large number of rare earth mines, but their mining is limited by environmental protection laws.

So, there is an urgent need for technological breakthrough in the creation of rare earth products, especially for high-precision fields, because maximizing the value of rare earth concentrates also does tremendous damage to the environment.

Fan Hongrui, a researcher at the Institute of Geology and Geophysics at the Chinese Academy of Sciences, said: “For every six new technological inventions in the world today, one is inseparable from rare earths.”

Patent applications for rare earth permanent magnet materials began to be dominated by China since 2005, while Japan and the United States’ progress in that field gradually stagnated. China has “even mastered the technology that can be produced without the patents of Japanese basic ingredients,” Fan boasts.

China’s rare earth reserves account for about 36% of the world’s total, but exports account for more than 80%. How to undertake extremely expensive rare earth mining and get an income that matches its value is an important issue that China urgently needs to be solve.

This was another issue that Xiao Yaqing, the Minister of Industry and Information Technology, emphasized today.