Major Change! China Northern Rare Earth Cancels Listing Prices and Adopts Real-Time Quotes from the Rare Earth Exchange. Is the "Baotou Index" for Rare Earth Price Trading on the Agenda?

The rare earth industry has seen significant changes at the start of the year. On January 2, China Northern Rare Earth (600111.SH) did not release its January rare earth product listing prices (hereinafter referred to as "listing prices") as scheduled, sparking market speculation. As of the afternoon of January 6, the listing prices had still not been published on the official website of China Northern Rare Earth.

"Due to adjustments in the company's operational strategy, the listing prices will no longer be published starting this January. In the future, the company will refer to the daily prices released by Baotou Rare Earth Exchange Co., Ltd. (hereinafter referred to as 'Rare Earth Exchange') when signing long-term agreements," a representative from China Northern Rare Earth confirmed to a reporter from Cailian Press. This indicates that the listing prices of China Northern Rare Earth, regarded as a barometer for the rare earth industry and the global supply chain, may be phased out.

Notably, a representative from Rare Earth Exchange told Cailian Press that the exchange began publishing daily quotes for rare earth products on its platform in November last year and currently collects pricing data from nearly 140 rare earth-related enterprises nationwide every day. In the future, the exchange plans to release a spot price index, with the launch expected in August 2026. The purpose of this initiative is to establish the Baotou Price Index, providing the market with a pricing reference.

Several industry insiders told Cailian Press that the cancellation of listing prices by China Northern Rare Earth in favor of daily pricing signifies a more market-oriented approach to the company's long-term agreements. However, since Rare Earth Exchange is a trading platform controlled by China Northern Rare Earth, concerns have arisen about the company holding both pricing and trading authority, effectively acting as both player and referee in the market.

What impact will the cancellation of listing prices have on the rare earth industry chain?

Public information shows that China Northern Rare Earth's listing prices date back to 2013. In recent years, the company has published its monthly listing prices on the first working day of each month on its official website.

According to disclosures by Baotou Steel Co., Ltd., the Baiyun Obo mine's rare earth reserves, converted to oxides, amount to 35 million mt, accounting for 81% of China's rare earth reserves. Currently, China Northern Rare Earth is the sole customer for the company's rare earth concentrate products. Industry insiders revealed that most of the leading domestic magnetic material enterprises are clients of China Northern Rare Earth. As a result, the company's listing prices have become a key industry benchmark.

China Northern Rare Earth previously stated on its investor interaction platform that its sales model for rare earth raw material products is primarily based on long-term agreements. The company typically sells rare earth products at its listed prices, which are set monthly. During the month, sales prices remain unchanged despite market price fluctuations.

Now, without the listing prices as a benchmark, how will transactions in the rare earth industry chain be affected?

Industry analysts told Cailian Press that China Northern Rare Earth's listing prices were primarily used for signing long-term agreements, so the adjustment will most significantly impact its long-term agreement clients. Previously, about 30% of the company's long-term agreements were based on prices from third-party websites, but these are expected to be excluded in the future.

A representative from China Rare Earth Group, a leading heavy rare earth enterprise, stated that listing prices have relatively long cycles and significant fluctuations. The shift by China Northern Rare Earth to daily pricing suggests that long-term agreement prices may transition to spot pricing, aligning more closely with the market and contributing to greater price stability in the rare earth market. A representative from China Rare Earth (000831.SZ) mentioned that the company has an internal pricing mechanism and also refers to market prices from third-party platforms like Baiinfo. They noted that in the current industry, long-term agreement clients typically negotiate prices rather than strictly adhering to listed prices.

An insider from a publicly listed rare earth permanent magnet company told reporters that the current rare earth market predominantly uses real-time pricing. If China Northern Rare Earth adopts daily pricing from Rare Earth Exchange for its long-term agreements, it will benefit the company's performance. "In the past, listed prices often diverged from market prices. Some long-term agreements even included discounts. When listed prices were high, downstream buyers were reluctant to purchase, and when listed prices were lower than market prices, it posed risks for China Northern Rare Earth. Now, buying and selling at market prices, following market fluctuations, should overall benefit the company's raw material sales."

Similarly, representatives from Guangdong Rising Nonferrous Metals (600259.SH) told Cailian Press that China Northern Rare Earth's strength lies in the light rare earth sector, so the impact on heavy rare earth transactions is expected to be minimal. The long-term impact will depend on the balance of market supply and demand. A representative from Zhenghai Magnetic Material (300224.SZ) also stated that given the significant market fluctuations in recent years, the company primarily procures at market prices, so the cancellation of listing prices by China Northern Rare Earth will not have a significant impact on the company.

However, some industry insiders expressed concerns to Cailian Press, noting that publishing rare earth product prices implies control over market price regulation. "If China Northern Rare Earth can directly control market pricing authority through Rare Earth Exchange, it will exacerbate concerns about the company acting as both player and referee."

Plans to Launch the "Baotou Index" for Rare Earth Price Transactions

Cailian Press learned that the deeper reason behind China Northern Rare Earth's adoption of Rare Earth Exchange pricing is the Baotou government's intention to establish the "Baotou Index" for rare earth price transactions. "Everything we are doing now is aimed at gradually building the Baotou Price Index to provide the market with a pricing reference," said the aforementioned Rare Earth Exchange representative.

According to the Rare Earth Exchange's official website, the company was established in August 2012 with a registered capital of 216 million yuan. It is the only electronic trading platform in China dedicated to various rare earth products, aiming to build a nationally credible third-party trading platform for the rare earth industry.

Public information shows that China Northern Rare Earth holds a 44.56% stake in Rare Earth Exchange and indirectly owns a 2.23% stake through Gansu Rare Earth New Materials Co., Ltd., making it the largest shareholder with actual control. The "shareholder group" of Rare Earth Exchange also includes China Rare Earth Group Co., Ltd., China Rare Earth Group Industrial Development Co., Ltd., Xiamen Tungsten, Gansu Rare Earth New Materials Co., Ltd., and 12 other enterprises, each holding a 4.62% stake.

From the perspective of Rare Earth Exchange, its greatest advantage lies in being backed by China Northern Rare Earth, a spot trading platform. "China Northern Rare Earth's Pr-Nd oxide trading volume accounts for about 70% of Rare Earth Exchange's trading volume. Our spot trading volume is the largest in the country. We collect market prices based on actual transactions and calculate daily rare earth product prices using specific weights and coefficients, making our data more verifiable than other websites."

As of the end of October 2024, Rare Earth Exchange had accumulated an online trading volume (REO) of 102,400 mt, with a transaction value of 11.635 billion yuan and 987 registered enterprises. Over the past three years, the platform's total trading volume reached 270,000 mt (REO), with a total transaction value exceeding 52.5 billion yuan, covering 36 categories of light, medium, and heavy rare earths.

In fact, the development of the "Baotou Index" for rare earth price transactions by Rare Earth Exchange has long been evident.

The "2024 Baotou Municipal Government Work Report" explicitly proposed accelerating the transformation of the rare earth industry from "world-class reserves" to a "world-class industry," exploring the establishment of a compliant and reasonable rare earth price formation mechanism, and launching the "Baotou Index" for rare earth price transactions.

In October 2024, Meng Fanying, Party Secretary and Chairman of Baotou Steel (Group) Co., Ltd., stated during a survey at Rare Earth Exchange that efforts should be accelerated to prepare for the release of the "Baotou Index" for rare earth price transactions and further enhance the industry's influence of Rare Earth Exchange.

In December last year, a price collection seminar held by Rare Earth Exchange revealed that "this year, Rare Earth Exchange has collaborated with Inner Mongolia University of Science and Technology to work on rare earth transaction price indices, determining the compilation approach for spot price indices and price trend indices for rare earth products. As of now, Rare Earth Exchange has completed five rounds of sample data collection from 136 enterprises, with the spot price index entering the index weight calculation stage and the price trend index entering the data accumulation stage."