Industry Trend Analysis - Rare Earths: China's Pricing Power Strategy To Be Nullified - JUNE 2015


BMI View: The Chinese's government's strategy to regain rare earth pricing power will be nullified by increased output in other rare earth producing countries. China's production will decrease due to domestic sector consolidation and freezing production quotas.

The Chinese government will attempt to regain international rare earth pricing power through consolidating the domestic rare earth sector, freezing production quotas and clamping down on illegal mining. On May 14 2015 the Chinese government approved the plan to merge the operations of the country's six state-owned rare earth producers. The plan will merge the rare-earth operations of Xiamen Tungsten, Baotou Iron and Steel Group, China Minmetals, Ganzhou Rare Earth Group, China Aluminium and Guangdong Rare Earth Industry Group over the coming years. When combined, the consolidated operations will account for 22.0% of domestic rare earth production. Furthermore, the quota for 2015 domestic rare earth production will be frozen and remain at 105 thousand tonnes (kt). The government's policies will constrict rare earth supply and reduce China's rare earth exports over the coming years. For instance, over the first four months of 2015, Chinese rare earth exports contracted by 20.8%, compared to 2014.

Government To Push For Consolidation
China - Rare Earth Production By Company (% Of Total, LHS) & Share By Region (% Of Total, RHS), 2015

China To Lose Market Share

China's global share of rare earth output will decrease due to the government's strategy and other producing countries ramping up production. In 2014, China held nearly 30.0% of the world's rare earth reserves and accounted for 85.0% of global production. In our view, countries including, the United States, Russia and Greenland will gain rare earth market share from China, due to those countries' vast rare earth reserves and strong project pipeline. For instance, the United States' global share of rare earth output grew from 5.0% in 2013 to 6.4% in 2014. Furthermore, Greenland's gradual opening up to mining companies for mineral exploration will be a crucial driver of rare earth production expansion in Europe. Greenland's Greenland Minerals and Energy Ltd's Kvanjofeld mine holds an estimated 6.6mnt of rare earth oxides, such as uranium and zinc, making it the world's second-largest rare earths mine. Moreover, rare earth mining will begin to gain traction elsewhere in Europe. For instance, in Q114, Russia announced it would spend USD1.0bn on the development of rare earth projects.

China To Lose Market Share
Global - Rare Earth Production (% Of Total)