China's scramble for integration of rare earth pricing rights triggered international disputes

Behind the surface of the fight for rare earth pricing power, China's rare earth policy has caused international trade disputes, but also caused the domestic up-stream and downstream to pay a heavy price.

"Let's put it on the chaos and die when you catch it" is a major feature of many industries and even the macro economy in China. The rare earth industry is no exception. But this time, the impact of the rare earth policy far exceeds the industry itself, and the controversy it has caused has never been greater.

Since the beginning of 2011, the price of rare earths has skyrocketed, resulting in a “gold price” from the “cabbage price” of the past. The biggest increase was in the case of antimony trioxide. In the seven-month period, the price rose by 858.3%, and the smallest metal gallium also exceeded 300%.

Regarding the unusual rise in rare earth prices, Ministry of Industry and Information Technology spokesman Zhu Hong explained on July 21 that this was caused by four factors: the original rare earth price deviated from its real price; resource-based products in the world generally rose; the new materials industry The development has promoted the increase of product prices; affected by the market adjustment, there is a large demand for rare earth products in China, and the domestic price of many rare earth products is still higher than the export price.

Is the reason only for this? Many senior industry experts questioned this. An old expert who once served in the State Council’s rare earth leading group told Caixin “New Century” that in the past, rare earths were sold as “cabbage prices,” mainly because the environmental protection and resource costs of producing rare earths were too low, but the current price increase is not Because these problems have been improved.

Chen Longhuai, the first general manager of Baotou Rare Earth High-Tech Co., Ltd. (hereinafter referred to as Baotou Steel Rare Earth) also pointed out that the soaring price of rare earths is mainly a “policy issue, coupled with expectations for the future. For example, the policy of restricting exports, Greatly raised the price expectation."

Under the influence of this expectation, hot money speculation has entered the market. The profit-taking behavior of these capitals is not difficult to understand, but what the industry deplores is that many rare-earth processing companies have also followed rare earths and inverted rare earths, shifting the focus from production to the purchase and sale of resources, and earning a “quick money” mentality. Companies are unintentionally innovating in rare earth applications.

Rising prices of rare earths may not even be the result of demand rather than supply. The state has a mandatory plan for rare earth production, but in fact it has completely failed in the market. Many industry insiders interviewed by the Caixin “New Century” reporter estimated that the current annual output of rare earths in China is more than 150,000 tons, while the domestic annual demand is about 70,000 tons. The actual result is that the market supply is much greater than the demand.

The irrationality of the export quota system is also one of the drivers behind the skyrocketing prices. "The transaction of trading quotas is prevalent, and a ton of quota is about 500,000 yuan," an industry source told Caixin's "New Century" reporter. As a result, companies that receive quotas can almost “get free,” and under this stimulus, manufacturers are more eager to eat more profits in the trade sector.

In addition, more people in the industry pointed out that the current rampant restructuring of the rare earth industry is a more important cause of price increases. Consultant Dou Xuehong from Baotou Rare Earth Research Institute told Caixin’s “New Century” reporter that industrial integration has fueled the monopoly’s expectations that a large number of SMEs have or will face “shut-down and transfer”, which directly triggers the upward movement of market prices.

A group of first-generation rare earth experts were worried. They think that the current rare earth industry is wrapped up in some viewpoints, “It seems that rare earths should be sold as 'gold price', and this view even kidnaps some government departments, officials and companies.Rare earth can't be sold as 'cabbage price', can not sell The 'gold price' should be the rare earth price."

Behind China's ostensible competition for rare earth "price-setting power," China needs careful examination of management ideas and export policies of rare earth industries. What are the consequences of these measures? Is it sustainable? What price can the industry pay for?

Franchise integration

Rare earth cannot be sold as a “cabbage price”, and industrial integration can grasp the pricing power. It is these two ideas that have spawned a series of rare earth policies in recent years.

The integration of rare earth industries did not begin this year. As early as the end of 2008, the northern rare earth industry had set off a wave of consolidation. In December of that year, Baotou Steel Rare Earth and Inner Mongolia Gaoxin Holdings Co., Ltd. (a subsidiary of Baotou Rare Earth High-tech Zone) took the lead and integrated several private enterprises including Baotou Huamei Rare Earth Hi-Tech Co., Ltd., hoping to organize production, purchases and prices through unified organization. And sales, control the right to speak of the rare earth industry.

In southern provinces where rare earth resources are scattered, in recent years, several large companies such as Minmetals, Baotou Steel, Chinalco, China Nonferrous Metals, Guangsheng and Xiagong tungsten have actively initiated acquisition and restructuring activities. Southern rare earths are scattered in five provinces of Jiangxi, Fujian, Hunan, Guangdong, and Guangxi, with a total of more than 100 mining warrants, mostly concentrated in the hands of local companies. Many of the above-mentioned central enterprises or large local state-owned enterprises have competed for these mining rights through mergers and acquisitions.

However, the second wave of integration of rare earth industries started this year is different from that before. This time it is a top-down policy promotion. In early May, the State Council issued the “Several Opinions on Promoting the Sustainable and Healthy Development of Rare Earth Industry”, and clearly stated that it is necessary to accelerate the strategy of large enterprises and large groups, further increase the concentration of rare earth industries, and basically form a pattern of rare earth industries dominated by large-scale enterprises. The industry concentration of the top three companies in the rare earth industry will reach over 80%.

The northern rare earth market is dominated by Baotou Iron and Steel (Group) Co., Ltd. (hereinafter referred to as Baotou Steel Group). On April 25 this year, the General Office of the Inner Mongolia Autonomous Region issued the "Notice on Soliciting Opinions on the Work Plan for Integrated Elimination and Retirement of Rare Earths in the Inner Mongolia Autonomous Region" to require mergers and reorganizations, compensation closures, and elimination of shutdowns, for rare earth upstream enterprises. Integration and elimination will be implemented to realize Inner Mongolia by Baotou Iron and Steel Group's franchise for rare earth mining, smelting and separation production. The plan clearly stated that the inspection and acceptance summary work should be completed before the end of June. However, from now to August, this integration plan has fallen into a dilemma.

According to the plan, Baotou Iron and Steel Group will stop the supply of raw materials to 31 companies listed on the shutdown list and be responsible for the compensation of 21 of them. The industrial and commercial department is responsible for revoking the rare earth production business licenses of these enterprises, and the power sector will have to The company stopped supplying power.

At present, only Baotou Steel Group has stopped the supply of raw materials to shut down enterprises according to this plan, and the industrial and commercial and power sectors have not taken any action. “This is a document issued by the Inner Mongolia Autonomous Region Government, but mainly affects Baotou City, and Baotou City may still want to take it slow.” The person in charge of Damao Rare Earth Co., Ltd. (hereinafter referred to as Daruma Rare Earth) told Caixin “New Century” reporter.

Since May 4th was covered by Baotou Steel, Danao Rare Earth can only rely on stocks of raw materials for production. “It will be able to persist for less than a month,” said Damao Rare Earth’s official. As for compensation, “I think Baosteel also Do not want to pay it, Bao Gang complained that 'we are also companies, but have to help the government engage in integration'."

The Caixin “New Century” reporter saw that the production line for the smelting and separation plant of Damao Rare Earth has been suspended, and ammonium bicarbonate and other raw materials are piled in the corner. Only the beneficiation workshop has dozens of workers in production, and the rest more than 300. Workers are now unable to get jobs and can only receive a minimum guarantee issued by the company each month.

According to interviews with Cai New “New Century” reporters, the major controversies of the integration of rare earths in Inner Mongolia include two points: First, integration should be a market behavior, not a government administrative order; second, the integration plan should be separated from the actual situation of the enterprise. It is difficult to accept the reasons for shutting down.

The integration scheme led by Baotou Steel Group directly chose “one size fits all”. The judgment standard for mergers, reorganizations, and shutdowns is that the four rare earth smelting and separation enterprises that have been approved by the competent investment authorities at or above the autonomous region level are negotiated with the Baosteel Group for restructuring and cooperation; and the relevant coalition and banner counties (cities, districts) The 21 enterprises approved by the project are funded by Baotou Steel Group, and the relevant local governments will compensate them at will to shut down and withdraw from the rare earth industry. The 10 enterprises without project approval documents will be closed down.

However, many people in the industry believe that the real criterion is that Baosteel is not interested in this enterprise. Among the four companies that have reorganized and cooperated, three are engaged in metal production, and the main ones that have been shut down are smelting and separation enterprises. “This part of the package Steel is not wanted because there is no shortage of capacity."

The companies that were interviewed by Caixin’s “New Century” reporters all said that their project approval procedures are in place. It was not until after 2008 that projects for rare earth companies needed the approval of the National Development and Reform Commission or the Inner Mongolia Development and Reform Commission. Prior to this, all urban-level approvals were required. Among these companies, there are projects attracted by investment in Baotou City, and Damaoqi where Daomo Rare Earth is located also has a 40-year water source mineral exchange agreement with Baotou Iron and Steel Group.

“The rare earth is a national strategic resource and needs industrial integration. This policy is intended to be understood by all of us. However, the actual operation is to be in line with the actual situation,” said one person in charge of the company. According to him, the staff of the Inner Mongolia Economic and Information Technology Commission and the Baotou Iron and Steel Group, before writing the integration plan, "only came to ask a few simple questions, and also 10 minutes," and they rushed out of the program as compensation for various companies. The production capacity data based on the funds is very different from the actual situation. The vast majority of companies can receive compensation for their production capacity much lower than their actual production capacity.

Chen Longhuai also pointed out that some enterprises that have to be shut down are quite outstanding and the price of integration is unreasonable. “Integrity is not a paper order and it can be integrated. It is a detailed investigation, and there are issues such as the way out of enterprises, integration methods and channels. solution."

Although this integration almost included all registered rare earth companies, it was unable to solve a problem. There are still many “black factories” in Inner Mongolia that do not have any registration and approval procedures. The total capacity of these enterprises is a few of those of Baosteel. Times, in fact, this is the biggest “stumbling block” for Baosteel to achieve rare earth franchise. These “black factories,” which are shut down at any time for check-ups and complete underground transactions, are almost undocumented. “The majority of their raw materials were stolen from rare-earth ore and tailings mines from steel-clad steel. To truly achieve integration, Baotou Steel must first strengthen management on itself,” said one person familiar with Baotou Steel.

The battle to eliminate the "valve separatists" has also spread to Fujian, Guangdong, Guangxi and other rare earth rich provinces. "The government's control over resources is achieved through the control of enterprises by central or central enterprises, and it is unlikely that they will develop rare earths through private enterprises." A responsible person of Jiangxi Jiangxi Rare Earth Co., Ltd., who cooperated with Minmetals, chose this option. Give it away.

However, in Dou Xuehong's view, the current integration action of large state-owned enterprises is only a short-term act of competing for resources. “Should be put into the development of cutting-edge technologies, not simply bigger and stronger, just look at the total amount.”

Many research reports of the consulting company Eurasia Group believe that the current idea of ​​rare earth integration in China is very similar to the previous coal and steel industry integration, and these integrations have almost all failed.

Injured downstream

Damian Ma, an analyst of Eurasia Group, believes that China's intensive introduction of rare earth management policies, especially export management, is mainly aimed at ensuring the supply of rare earths in strategic emerging industries in China. The problem is that even if it is a good policy intention, the results of its implementation will often be rampant.

Ma Pengqi, chief engineer of Baotou Rare Earth Research Institute, former chief engineer of Baotou Iron and Steel Company, bluntly stated, “Limiting the export of rare earth can not be limited to foreign countries, but rather limit myself.” At present, the domestic demand is about 70 percent of the country’s total rare earth output. %. However, in the view of many rare earth industry experts, the real value of rare earth is in application. In recent years, the development of domestic rare earth application technology has been slow. Today's high prices have brought tremendous pressure to downstream enterprises.

Wu Hong of China Rare Earth Phosphor Lamp Collaboration Network told Caixin’s “New Century” reporter that one-third of the companies producing rare-earth trichromatic phosphor lamps have stopped production because the price of phosphor has risen to 3,000 yuan/kg. Some companies even started to use phosphor powders that cost as little as 20 yuan per kilogram.

Not just the more low-end applications of phosphors. Dou Xuehong told Caixin’s “New Century” reporter that many magnetic material production enterprises in Shanxi and other places have also stopped production. Most of them are private small and medium-sized enterprises. “These companies have limited financial resources and there are not many stocks before.” And large companies such as Zhongke Sanhuan have also found themselves in a paradoxical mentality. “Their cost pressures are also very high, but they think that once again, small businesses can all die.”

The days of production of fans downstream from magnetic materials are also difficult. In particular, companies that produce permanent magnet direct drive motors account for about 30% of the cost of raw materials for permanent magnets. Xiangdian Electric has now stopped the purchase of NdFeB materials.

According to a study by CICC, the spot price of permanent magnets has soared from RMB 100 to RMB 700 per kilogram, which is equivalent to an increase of RMB 400 per kilowatt for the cost of each 1.5MW permanent magnet drive, if all are purchased in the spot market. , The compressed gross margin exceeds 10%.

Dou Xuehong is worried that "this high price is transmitted to the downstream, downstream may find another alternative." Aijian Securities also pointed out in an analysis report that the price of NdFeB is high, and direct-drive wind turbine manufacturers may choose alternative technology routes to avoid the cost of rare earths, such as the use of electric excitation direct-drive routes. "The true value of rare earth is in application, especially in high-end applications. If we go on like this, our rare earth development results for so many years may be destroyed." An old expert who worked for Baotou Rare Earth Research Institute for many years commented.

He further said, "We have been talking about the right to speak of rare earths. What we really want to fight is the technical right to speak, not the right to speak on price."

At present, the core technology of high-end rare earth applications is still in the hands of companies in Japan and Europe and the United States, and the domestic idea is resource-for-technology. As early as August 2002, the State Development Planning Commission released the Interim Regulations on the Administration of Foreign-Invested Rare Earths Industry (No. 1259 of Industry No. [2002]), proposing that foreign companies should not establish rare earth mining enterprises in China and prohibit foreign-owned enterprises from establishing rare earth smelting and separation projects. However, foreign investors are also encouraged to invest in rare earth deep processing, new materials, and rare earth applications.

Since the establishment of the rare earth high-tech development zone in the early 1990s, Baotou City has been hoping to attract foreign companies like GE to enter the city and improve the level of applied technology through the development of rare earth downstream industries. However, in the view of Mading, due to the urban environment and culture, With restrictions on social development and other conditions, Baotou is not attractive.

Industrial chain crisis

As domestic policies have gradually tightened, export quotas have also been reduced. This makes rare earths the most important area of ​​China's foreign trade friction in the past year.

The Ministry of Commerce began tightening rare earth quotas a year ago. In 2010, the total amount of rare earth export quotas was 30,300 tons, which was nearly 40% lower than in 2009, and the quota for 2011 was slightly lower by 74 tons than last year. From May 20, 2011, China has included rare earth ferroalloys in quota management, and some analysts believe that this is equivalent to further reducing export quotas.

At present, China's rare earth reserves account for 30% of the world's total, but its export volume exceeds 90% of global trade volume. The drastic reduction in quotas caused dissatisfaction with Japan, the United States, and other rare earth importing countries. According to the "Wall Street Journal" report, a senior US trade official said on July 21 that China's restrictions on the export of rare earths are a global issue. Rare earth export quotas will lead to market distortions, which should be a dangerous signal for China.

It is a recent ruling of the World Trade Organization (WTO) that Western countries consider it advantageous.

On July 5th, the World Trade Organization distributed to the members a panel of experts from the United States, the European Union, and Mexico v. China's nine export restrictions on raw materials. It is believed that China's export tariffs and export quota measures violate China's WTO commitments and related WTO rules. Although this case did not involve rare earths, the analysis generally believed that rare earths may be implicated in this.

Senior Chinese government officials have stated on many occasions that China’s environmental protection needs not only restrict the export of rare earths, but also restrict the entire chain of exploitation, production, and trade. This approach is in line with WTO rules.

The person who understands the case's response to the situation, the China Minmetals Chemicals Import & Export Chamber of Commerce (hereinafter referred to as the Minmetals Chamber of Commerce) told Caixin New Century reporter that the WTO does have environmental protection exceptions, but the use of this clause is accompanied by In terms of conditions, “the focus is on whether the production and consumption of related raw materials in China are also limited, while restricting foreign exports.”

According to the report of the WTO expert group, while restricting exports, the Chinese government has not taken measures to limit domestic exploitation and consumption. This means that people are not treated equally internally and externally.

In recent years, the Ministry of Industry and Information Technology has implemented a mandatory production plan for a variety of raw materials and increased efforts to eliminate outdated production capacity. It is unclear whether the effect of these measures has reached expectations. “In the case of coke, production restrictions can find documents, but in reality they are reluctant to switch off, and there is no evidence that consumption is limited. China's steel production is still growing,” said the Minmetals Chamber of Commerce.

Rare earths also face similar problems. In 2007, the Chinese government made a directive adjustment to the rare earth production plan and the directive production plan showed a declining trend.

However, “policies go back to policy implementation,” and a person familiar with Baotou Steel Rare Earth told Caixin’s “New Century” reporter that Baosteel Rare Earth received a mandatory plan of 50,000 tons last year, but “the actual production of concentrates. An estimated 200,000 tons."

"It can be said that there is no one to abide by (instructional plan)." Wang Guozhen, former deputy director of China Nonferrous Engineering Design Institute, told Caixin New Century reporter.

For the domestic rare earth reserves, Chen Longhuai even used "inexhaustible, inexhaustible" to describe, not only tailings, a lot of waste residue are rare earths. The rare earth itself is a kind of metal with a long service life and less consumption. The aforementioned experts from the Baotou Rare Earth Research Institute told Caixin’s “New Century” reporter that “only in Baotou, the world can still use 200 years.”

Today, rare earths have sold "gold prices" and soon stimulated the supply of the world market. The Australian company Linus spent US$450 million to develop its Weld mine in September last year and plans to start production in the third quarter of this year.

According to the US Geological Survey, China's rare earth reserves are approximately 3,600 tons of REO (REO is a rare earth oxide), accounting for 36% of global reserves, and reserves of the United States and Australia account for 19% and 5%. The largest rare-earth mineral deposit outside China, which is currently known, was suspended in 2002 after the production of the Pt rare earth mine (Mt. Pass) in California, and is now resumed production.

Judging from the current situation, it is impossible for China to continue to monopolize the global supply of rare earths in the medium to long term. Dou Xuehong’s concern is: “Even if the price drops, foreign countries will not buy our rare earth, and the industry’s reputation is already broken. However, our application has not yet developed and this industry chain has been harmed.”