Rare Earths MMI: Chinese Producers Stockpile REs Ahead of Consolidation

by , Jeff Yoders on JUNE 8, 2016

Stockpiling of rare earths by China’s six largest producers has pushed up prices over the past two months.

Following the completion of the first stage of a national inventory-filling effort in mid-April, China’s rare earths prices have seen increases almost across the board. This stockpiling comes as China prepares to finalize consolidation of its industry under six large state-owned firms — Chinalco, Northern Rare Earth, Xiamen Tungsten, China Minmetals, Southern Rare Earth and Guangdong Rare Earth — by the end of this month.

It’s a time of both stockpiling and tightening in the People’s Republic, the world’s largest producer, as a nation, of the metals used in batteries, magnets and high-tech is trying to reform both how it mines and how it sells rare earths. As we previously reported, much of the expected consolidation in China was slowed in the first two quarters by the weak market and stimulus measures that gave producers new reasons to overproduce. Now, the Chinese industry is scrambling to consolidate and force the closure of smaller producers.

Tax Reform in China

After July 1, China will expand its reform of resource taxes across the board and base this tax on prices instead of quantity. Authorities believe that a price-based tax would reduce tax burdens on unprofitable resource sectors (such as rare earths) and boost taxes on the more profitable sectors. The expectation is that taxes will then follow the resource-cycle.

Our Rare Earths MMI was up 11% this month, but it was only a 2 point increase, belying how low the level that rare earths have traded in for the last year really is. The price boost can be attributed, almost entirely, to the aforementioned stockpiling.

China’s second quarter commercial stockpiling supposedly ended on May 31. The initiative helped boost prices, but that’s really just a temporary market effect ahead of the expected consolidation. In the long term, the market is still oversupplied and forcing out smaller producers in China really won’t have much of a practical effect.

Compare Prices With The May 2016 MMI Report

Companies such as Mitsubishi are also touting new methods they are researching for rare earth magnet and battery recycling, processes that would be a further threat to primary mining. We advise buyers to approach rare earths with caution as this is one market whose supply still exceeds considerable demand.