Analysts cite environmental costs, ban on illegal mining
Several factors have been causing the prices of rare-earth metals and materials to fluctuate widely, including crackdowns on pollution and illegal mining, State stockpiling and industry consolidation, analysts said.
The volatility comes amid new emerging demand for these important metals, which are used in a wide range of high-tech products from new-energy vehicles (NEVs) to smartphones.
According to a single-day price monitoring index provided by Beijing-based research firm Beijing Antaike Information and Development Co, the average index for rare-earth oxides rose to 131 in August, before dropping to 117.81 at the month's end. The index was still 21.5 percent higher than the month-end figure in July. From January to August, the average price index for rare-earth oxides was 88.19, up 14.5 percent year-on-year.
State broadcaster CCTV reported on Tuesday that the rare-earth market has been hyperactive since last year, driven by newfound demand for batteries used by NEVs. Prices of raw and partly refined rare earths have been rising continuously in recent years, setting new records for gains and actual prices.
Listed companies involved in the sector have reported stronger financial performances. Shenzhen-listed China Minmetals Rare Earth Co has said that it moved into the black in the first half of the year and Shanghai-listed China Northern Rare Earth (Group) High-Tech Co has said its net profit margin grew by more than 200 percent from January to June.
Prices of major rare earths have risen by more than 50 percent since beginning of the year, according to the CCTV report.
A manager of international trade at Gansu Rare Earth New Material Co, who declined to be identified, told the Global Times on Wednesday that the company's higher product prices mainly reflected an increase in environmental costs. But the manager said that "there is little to gain, as prices of raw materials have also risen, so profits only improved a bit."
Fu Liyao, an analyst at chinaiol.com, said demand for certain rare-earth metals such as magnetic materials has risen by more than the sector as a whole, because there has been such strong growth among end-users such as makers of NEVs, consumer electronics and motors in China.
"The environmental crackdowns this year appear to have been stricter than before, although crackdowns have been going on for years. Also, control over illegal mining intensified, and these factors pushed up prices of rare earths .
"Other factors include the State-led buying of rare earths for additions to reserves and the consolidation of major rare-earth companies," Fu told the Global Times on Wednesday.
"Illegal mining volume has basically disappeared, compared with the previous annual level of 30,000 tons to 40,000 tons. All these factors curtailed supplies in the market and drove up prices," Fu said.
The upgrading and consolidation taking place in the industry will push out smaller companies, and it will also threaten middle-sized companies that lack core technologies and stable clients and rely solely on price competition, Fu noted.
Pressure on illegal mining, combined with significantly higher demand from downstream users, have improved the industry's longer-term supply-demand picture and underpinned the prices of rare-earth metals, Chen Shufang, an analyst at Antaike, said in a research note sent to the Global Times on Wednesday.
After the government warned that it might crack down on speculative hoarding, prices did decline, Chen said.
"We can see that the government hopes prices will rise in a rational fashion, without the wild fluctuations caused by speculation. It is expected that prices of rare-earth metals will resume their upward trend after a period of adjustment," Chen said.
Wu Chenhui, a Beijing-based independent industry analyst, told the Global Times on Wednesday that as rare-earth prices in China rise, foreign producers may increase output.
Unless foreign production grew significantly in that scenario, any price rise will have little impact on China's exports.