As a strategic reserve resource, rare earths have always been highly valued by various countries. Rare earths are known as "industrial vitamins" and have now become extremely important strategic resources. Rare earth elements have a wide range of applications, including petroleum, chemical, metallurgical, textile, ceramic, glass, permanent magnet materials, and other fields. With the advancement of technology and continuous breakthroughs in application techniques, the value of rare earth oxides will become increasingly significant.

After experiencing a significant decline in the early stage and multiple stimuli of recent positive news, the rare earth industry has also reached a turning point. Recently, multiple economic data such as PMI in China have shown signs of stabilization, and downstream demand in the industry continues to rebound. However, mining enterprises are suffering severe losses, and the significant decrease in rare earth production has led to a significant increase in prices.

China has extensive rare earth resources and plays the role of the world's major exporter of rare earths. However, due to long-term disorderly mining, China's rare earth reserves have declined significantly compared to before. A few years ago, Count Dracula, an Italian researcher on rare earth issues, stated in his article that the proportion of rare earth elements in China in the world, which was recently said to be over 85%, is now less than 30% of the world's actual rare earth amount.

At the same time, some developed countries are aggressively stockpiling rare earths in an attempt to gain pricing power. There is data indicating that Japan has hoarded enough rare earths from China for its domestic use for 100-300 years, thereby gaining pricing power over rare earths. Compared to the rise in prices of other combat readiness resources, rare earth prices have remained lukewarm and even plummeted recently. China's waste of rare earths is confusing.

Serious losses

According to relevant data, the average price of rare earths fell by 15% last year, and some product prices even dropped by 30%, causing difficulties for rare earth enterprises in China to operate. The six major rare earth groups, except for one that barely made a profit due to unpaid resource tax on tailings collection, are all mired in losses.

According to statistics from Ruidao Metal Network, in 2015, almost all varieties experienced a price drop of over 10% compared to the beginning of the year, with europium oxide experiencing a significant drop of 64.85%. Although prices have improved, the compression of profits has forced many small and medium-sized enterprises to voluntarily exit, while large enterprises are still struggling to make ends meet.

Zhang Wei, a precious metals analyst at Zhuochuang Consulting, said in an interview with China National Economic News, "The recent rise in rare earth prices is partly due to commercial hoarding and partly due to companies' reluctance to sell. Although prices have rebounded, there will still be fluctuations in the short term

Due to the sluggish economic situation in countries with high demand for magnetic materials such as Europe and Japan, coupled with the continued downturn of downstream enterprises, domestic demand orders have further shrunk, resulting in a significant decrease in the demand for magnetic materials in the market.

Wang Zhongshan, technical consultant of the Alloy Branch of the China Rare Earth Industry Association, once said that the bigger problem currently faced is sales, which is fundamentally overcapacity. From a historical perspective, China's annual production of rare earths of around 110000 tons can fully meet domestic and export needs. However, in recent years, the annual production still exceeds demand, resulting in a large amount of inventory. Therefore, reducing production capacity and inventory is a necessary experience for the industry.

For a long time, China's rare earth industry has been plagued by unauthorized mining, also known as "black rare earths". Zhang Wei stated that the continuous weakness in rare earth prices is closely related to the inability to eliminate "black rare earths" (blog, Weibo), as unauthorized mining has caused serious oversupply in the market.

In the past, although the country had clear regulations on rare earth mining, some local governments still reached a "consensus" with enterprises for their own interests and gave the green light to illegal rare earth mining. In recent years, China has intensified its crackdown on "black rare earths", but due to the deep entanglement of interest chains, the phenomenon of unauthorized mining in many places has not been effectively curbed.

However, in the cold winter, the industry still has a glimmer of hope, and emerging technology industries such as new materials will become opportunities for innovation and upgrading in the rare earth industry, becoming a new blue ocean for the rare earth industry. With the transformation and upgrading of China's economy, rare earths will almost always be used in several strategic emerging industries in the future, and many demands are irreplaceable, which will bring unprecedented development opportunities to the rare earth industry.

Zhang Wei stated that with the increasing crackdown on "black rare earths" by the government and the gradual recovery of the market, although there may still be fluctuations in rare earth prices in the short term, a moderate increase in prices is expected in the long run.

Policy support

On April 21st, the Ministry of Industry and Information Technology publicly solicited opinions on the "2016 Edition of the Rare Earth Industry Standard Conditions" and the "Management Measures for the Announcement of Rare Earth Industry Standard Conditions".

The "Standard Conditions for Rare Earth Industry (2016 Edition)" proposes that mining enterprises should strictly follow the approved development and utilization plan and mining plan for mining, strictly prohibit unlicensed, cross-border mining, and mining exceeding the total control quota, and strictly prohibit the use of mining techniques that damage the environment and waste resources.

According to statistical data, the supply of "black rare earths" in China reached 40000-45000 tons last year, while the regular supply was 105000 tons, which undoubtedly exacerbated the overcapacity situation in the rare earth industry. The introduction of this new policy is seen as the official start of another tough battle to regulate the entry threshold of the rare earth mining industry and crack down on "black rare earths".

Shang Yan, a researcher at the Youpin Financial Research Institute, stated in an interview with the China National Economic News that the policy introduced this time is characterized by "focusing on smuggling and supplemented by storage collection". This supply side reform will significantly reduce the supply side of rare earths, especially for medium and heavy rare earths with high product prices, low private mining costs, and large private mining volumes.

Professor Zhang Jiumin from Shijiazhuang University of Economics expressed the same opinion in an interview with China National Economic News. He believes that the introduction of new policies will alleviate the imbalance between supply and demand, regulate industry order, and protect China's rare earth resources.

Zhang Jiumin told reporters that the increase in industry barriers may force enterprises to carry out technological transformation and improve the overall technological content of China's rare earth industry. For a long time, although China has been a major rare earth country, it is not a strong rare earth country. Most of China's products have low added value, and once the new policy is implemented, the cost may increase to a certain extent, resulting in a rise in prices. Downstream enterprises may focus more on technological transformation and research and development of products with higher added value to increase profits.

Zhang Wei stated that China has once again taken action against the chaos in the rare earth industry, which also demonstrates the importance China attaches to the rare earth industry. But similar policies have been introduced by the country before, and in the specific implementation process, it still needs to face the awkward situation of "policies at the top and countermeasures at the bottom". If the rare earth industry wants substantial improvement, it also needs to strengthen supervision. If supervision is not strict, everything will be meaningless. National policies will continue to affect the trend of rare earth prices.