Potential national reserve could boost prices, but problems remain: analysts
The rare earth market in China is anticipating a government's plan to create a national reserve for metals used in high-tech industries such as electronics, defense and renewable energy, as officials met with industry leaders on Thursday.
The reserve could offer short-term support to the country's rare earth industry, which is currently in the doldrums caused by deteriorating market conditions both at home and abroad, including falling prices, but further consolidation and restructuring are needed to ensure sustainability, analysts warned.
The meeting, convened by the National Development and Reform Commission (NDRC), China's top economic planner, focused on determining the list of State-owned companies tapped for the national reserve and the prices of rare earth products for the reserve, the Economic Information Daily reported on Thursday.
Also, the meeting will push major rare earth companies to carry out earlier proposals to build commercial reserves, but the focus will be on the prices, as companies try to push the price higher after a failed attempt earlier in the month to set prices, the report said, citing unnamed sources.
An NDRC spokesperson referred questions from the Global Times to the agency's website, but no details were published as of press time on Thursday.
Global response
The prospect of a national reserve has already boosted prices for some rare earth products both in China and internationally, as the market is anticipating a turnaround in demand, analysts pointed out.
Since news of the national reserve surfaced, prices for some rare earth products in the domestic market have increased between 5 to 10 percent, according to the Economic Information Daily.
International spot prices for some rare earth metals also increased on China's prospective plan to stockpile the materials, with the price of neodymium, used in magnets, rising 10 percent in June from the previous month, and price of terbium, a phosphor raw material, climbing 11 percent, the Nikkei Asian Review reported on June 16.
"Given the sluggish demand both at home and abroad, the plan for a national reserve definitely stimulated the rare earth market," said Han Xiaoping, chief analyst at the energy-focused website china5e.com.
The move would not only boost demand in the short term but could also help to restore market order and stabilize prices, Han told the Global Times on Thursday.
Lingering problems
However, the momentum will not last long because issues still exist and continue to contribute to the deteriorating market conditions, according to Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University.
"Issues like oversupply, illegal mining, smuggling and low demand still exist," Lin told the Global Times on Thursday. "Supporting the industry by building a national reserve is just not sustainable and sufficient in tackling the problems."
Those issues have haunted the rare earth mining industry in China, which accounts for over 80 percent of global production, according to the Nikkei Asian Review.
Companies, some illegal, rushed into rare earth mining and production when prices were high and smuggled the minerals across borders when China imposed a quota on exports, creating a supply glut both at home and abroad, which drove prices down, analysts said.
After the quota was dropped in 2015 following a WTO ruling, exports increased even as prices remained low. For example, in April, exports of rare earth metals rose by over 47 percent, while prices fell by nearly 50 percent, according to the Association of China Rare Earth Industry. The organization also said major companies also are struggling from with declining profits.
Lin said the government is concerned that important minerals are being wasted, which, along with the potential for a rebound in demand in the long run, prompted the government to take measures such as the building of a national reserve and cracking down on illegal mining.
"But that's not enough. A long-term supply-side reform plan to further consolidate and restructure the industry is needed," Lin said.
