China will subsidize its rare-earths producers

China , Commodities , Metals , Rare Earths Nov 23, 2012 No Comments

Rare earthsThe Chinese government continues to restructure and modernize its rare-earths industry. In a move that Beijing describes as “promoting orderly development”, it will provide direct subsidies to revive struggling rare-earths producers – a tacit acknowledgment of the strategic importance of the industry.

We mentioned in a previous article that prices of rare-earths minerals were succumbing to gravity. The explosion of the bubble, which saw the price of rare earths to increase six-fold between June 2010 and June 2011, has reduced prices to such a level that the two major Chinese producers have decided to temporarily stop their activity. Soaring prices led new projects and also motivated consuming industries to find alternatives. While consumer countries denounced China before the WTO for reducing its export quotas, Chinese sales of rare earths have fallen 30% in 2012 to 11 000 tonnes.

To help this strategic industry cope with the new situation, the Chinese authorities have created a special fund from the government central budget. This fund is intended to help local authorities in their fight against the illegal mining and smuggling of rare earths. It will also help producers to improve their technology to become more environmentally responsible.

Mining companies will also receive 1,000 yuan (160 dollars) per tonne of extracted oxide while refiners will receive 1,500 yuan (240 dollars) per ton produced. Financial support for new rare-earths technology projects will not exceed 20% of the amounts per project with a ceiling of 50 million yuan ($ 8 million) . Overall, therefore, this help should not exceed 35 to 40 million dollars per year. The subsidies are likely to raise further concerns in the US, EU and Japan.

New alternate rare-earths supplies

In Malaysia, a Lynas plant has already received its first shipment of rare-earths concentrate from the Mount Weld mine in Australia. The plant, an 800 million investment, the largest investment outside of China, has been ready since May 2012, but only received the authorization to operate on November 8th. Japan, the largest consumer of rare earths, has heavily invested to find alternative sources to China. The Japanese government has signed an agreement to develop a new project in India, led by Toyota Tsusho. This Toyota subsidiary, has partnered with a subsidiary of IRE Nuclear Power Corporation of India to export 4,100 tons of rare earths to Japan between now and spring 2013. Early November, Sumitomo created a joint venture with Kazatomprom, the Kazakh  Atomic Energy company to build a rare earth plant in Kazakhstan.

Dudley Kingsnorth, of rare earths consultancy Imcoa, says production of the elements outside China will grow tenfold over five years, from 6,000 tonnes in 2011 to 60,000 tonnes in 2015.

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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