SHANGHAI, Jan 29 (SMM) - With the rapid development of emerging industries such as new energy vehicles, wind power, industrial robots, energy conservation, and high-end manufacturing (industrial motors, etc.), rare earths, as an indispensable raw material for the development of modern industry, have become the focus of government strategic reserves. As a country with rich rare earth reserves and a "monopoly" country in terms of rare earth smelting and separation, when China's rare earth downstream (new materials and other application fields) has not yet achieved strong competitiveness, the priority should be given to mastering the global pricing of rare earth upstream commodities through rare earth supply-side reforms. And it is the core to promote the value enhancement of the rare earth industry.
Since 2011, the Chinese government has promoted the standardised development of the supply side of China's rare earth industry through three rounds of reforms:
The first round (2010-2016) mainly focused on the rectification of the industry order, including cracking down on "illegitimate rare earth" and related interest chains, closing illegitimate mines, cancelling export quota while levying mine resource valuation tax.
The second round (2016-2020) features the supply-side reform to facilitate the orderly development of rare earth supply. Specifically, six large rare earth groups were established with the acquisition of rare earth mines and smelting/separation quotas, and outdated capacity was eliminated. Meanwhile, new material research and development and industrialisation projects were promoted to expand downstream demand.
The third round (2021-present) covers rare earth management regulations in an effort to institutionalise and legalise all aspects of production and operation such as rare earth mining, smelting and separation. In addition, integration and merger of the rare earth industry is also a key strategy to further concentrate and control the industry's production capacity. The six large rare earth groups have been further integrate into four rare earth groups (among which China Minmetals Rare Earth, Southern Rare Earth and Aluminium Corporation of China were merged to form the China Rare Earth Group).
From the perspective of policy evolution, China has mainly adopted two methods to enhance its pricing power of the rare earth industry chain. One is to become a powerful party that affects market supply and demand through supply-side management and development to enhance its presence. The second is to form absolute advantages in production technology and production capacity, and enhance industry concentration to prevent vicious competition. SMM predicts that China's rare earth industry will become increasingly integrated in the future, with heavy rare earth in south China and light rare earth in north China. At the same time, China strictly manages and controls rare earth supply via mining and smelting/separation quotas based on market demand, and continues to steadily increase the value of rare earth products on the premise of promoting the healthy development of the downstream market.
As the most widely used rare earth element in the rare earth market, PrNd oxide is mainly used in the field of permanent magnets. Following the supply-side reform at the national level and rapid increase in the demand for permanent magnet materials, the social inventory of PrNd oxide has been at a low level. In 2021, affected by factors such as new energy vehicles and the rush to install onshore wind power facilities, the market experienced a short supply. In 2022, the import of rare earths were lower than expected due to the pandemic, which also resulted in supply tightness. As uncontrollable factors such as the pandemic fade, SMM expects that under the government's strict implementation of the on-demand quota system, the supply and demand of PrNd oxide will maintain a tight balance.
