China is a wild west environment.
We need to talk about how rare earth prices are imploding
Frik Els | April 26, 2012
Platts reports Thursday China will start forcing rare earth producers out of business if they don’t qualify for new value-added tax permits being allocated from May 1.
Officially it’s China’s latest bid to curb resource plundering, dangerous artisanal mining and widespread pollution.
China produces over 95% of the world’s REEs used in a variety of industries including green technology, defence systems and consumer electronics.
Platts quotes one Chinese industry source as saying: “We believe it is a start that China will undertake to regulate the country’s rare earth production, however there is a long way to go.”
Cleaning up the notoriously dirty rare earth business in China is laudable, but the latest regulations are probably aimed more at trying to stop chronic overproduction of REEs in Sichuan and Inner Mongolia, which have recently led to an implosion in export prices.
Official output quotas in place since 2007 are readily exceeded by 40% – 50% each year. While prices have been moderating since the record levels of Q3 2011, in 2012 prices for many rare earths are close to collapsing.
Abundant, less valuable REEs such as lanthanum have experienced the sharpest reversals.
Lanthanum oxide – used in ceramics and fuel catalysts – for example rose from a price of just $8.71/kg in 2008 to $117/kg in the third quarter last. At the start of 2012 it had pulled back to $66/kg.
Now it has halved again – on Monday a kilogram of lanthanum could be picked up for $26. That’s a 77% collapse in less than nine months. And consider that inside China that same kilogram costs half $13.15.
When export prices of lanthanum were at record highs of $117/kg domestic Chinese prices were less than $20. That differential has gone from almost 10 times to less than double.
This price behaviour can be seen across the board.