Activists in Malaysia protest against Australian mining company Lynas, which has decided to construct an enormous rare earth refining plant, Feb. 26. (Photo/Xinhua)
China needs to take quick action to revamp its strategies for the rare earth industry in the face of mounting pressure from several foreign nations, especially Australia, Malaysia and the United States, industry leaders have warned.
China's rare earth industry has long enjoyed a dominant role in the world market but has also invited growing pressure from developed nations like the US, Japan, and European countries that have taken China before the World Trade Organization because of its export quotas.
The market is expected to undergo drastic changes soon as some international companies are set to begin low-cost, high-volume production before the end of the year. The increased competition will likely cause dramatic adjustments to rare earth prices in the next one or two years and operating costs will become a more crucial factor in competition with the resulting changes in supply on the international market, said Zhang Zhong, said the chairman of China's Baotou Steel Rare Earth Group Hi-Tech Co, based in Baotou in Inner Mongolia.
Rare earth suppliers in China will face greater risks of steep drops in both prices and profits amid slower sales that will bring a sweeping reshuffling to the industry in the second half of the year, said some other industry experts interviewed by the Beijing-based Economic Information Daily.
A senior executive at a major rare earth enterprise said that an Australian group is building gigantic rare earth production facilities in Malaysia, with a total output capacity 10 times that of Baogang Rare Earth. The project has received production permits from the Malaysian authorities with a target of producing 20,000 metric tons in the initial phase. Rich resources and modern equipment will lower the production cost to around A$2 (US$2.07) per kilogram, making the market price extremely competitive, he said.
A separate executive at a rare earth processing company based in Shenzhen said he was highly impressed by the rich resources and competitive operating costs abroad. He said that prices in China have stayed weak this year and the whole industry could face a prolonged slump for five years.
Many of the smaller production companies and trading firms, lured by "windfall profit" in recent years, will face a fierce shakeout soon, he said.
An American company has also been tapping rare earth resources in Malaysia while some others are actively cultivating rare earth resources in South Africa as well.
There are currently 200 rare earth projects under development around the world, said Dudley Kingsnorth, a rare earth expert and chairman of Industrial Minerals Company of Australia.
Legally produced rare earth mineral products reached 84,900 metric tons in China in 2011. But the output of the US enterprises alone will account for half of China's total amount if the figure remains unchanged in 2013. Japan has also revised the deployment and development of rare earth resources.
China's rare earth industry will be caught in squeeze from multiple directions, said analysts.
To cope with the imminent challenges, China needs to seize the current weak market to overhaul strategies, said industry experts. Measures could include consolidating corporations into giant rare earth groups to take on stiffer competition on the world market, gradually shifting focus to medium and heavy rare earth products from light products, and making overseas investments to build up resources for long-term operations, and strengthening administration to limit the blind expansion of mining and refining operations.
As well, companies can improve market order and stop price slashing amongst suppliers, while the government can more effectively crack down on the smuggling of rare earth products, they suggested.
Zhang Zhong 張忠
Liu Zhenya has served as the president of State Grid Corporation of China since 2004. Born: 1952 Birthplace: Tancheng, Shandong province Country of Citizenship: China Career: Power ...