Rare earth prices surge

Updated: 2011-03-31 13:23
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BEIJING - Prices of rare earth metals and shares of related Chinese companies have been on a bull run in China on the eve of the introduction of a key resources tax expected in April.

Since the beginning of this year, average prices of 17 elements that are vital ingredients in high-tech products have doubled in China from the end of 2010 as speculative funds are now suspected of targeting the industry for huge returns, analysts said.

Prices of two light rare earth elements, praseodymium oxide and neodymium oxide, soared about 120 percent from the end of last year to 459,000 yuan ($70,000) per ton and 575,000 yuan per ton, respectively, last Friday, according to data of Hwabao Securities.

Prices of two other heavy rare earth materials, dysprosium oxide and terbium oxide, were 104 percent and 81.5 percent higher than at the end of last year.

"Speculators bought all rare materials available on the market, regardless of their prices," said an executive of a large rare earth company in the city of Ganzhou, east China's Jiangxi province.

Ganzhou is one of China's largest rare earth producing regions, along with Baotou, a city in the northern Inner Mongolia autonomous region.

"The enormous funds began entering the industry shortly after the Chinese Lunar New Year, buying in large numbers in Ganzhou and Baotou," said the executive, who asked not to be named due to the sensitivity of the issue.

Rare earths, a collection of 17 elements, are important ingredients in manufacturing sophisticated products, including flat-screen monitors, electric car batteries, wind turbines, missiles and aerospace alloys. However, mining the metals is very damaging to the environment.

"Judging from years of experience since I've been in the rare earth industry, such buyers are not our real downstream clients, but speculators who are hoarding the materials for profiteering purpose," he said.

According to the executive, such speculative funds came mainly from Wenzhou and other cities in eastern Zhejiang Province.

As the world's largest rare earths producer and exporter, China adopted a series of policies for the industry this year to balance environmental protection needs and industrial demands, including stricter emission limits on miners, cuts in export quota and a resources tax.

China supplies more than 90 percent of the global rare earth demand. However, its reserves account for about one-third of the world's total.

"Not only rare earth processing companies rushed to buy raw materials, investors with a great amount of speculative capital also chased after the minerals thanks to the wide expectation of price hikes," said Heng Kun, a chief analyst with Essence Securities.

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Heng said the huge influx of money into the rare earth industry to hoard raw materials has caused a supply shortage in the country and pushed up prices further, which again drew the attention of speculators that bet on hikes amid the country's new industry policies this year.

Starting April 1, every ton of mined light rare earths in China will be taxed 60 yuan while each ton of medium and heavy rare earths will be taxed 30 yuan.

The newly introduced tax will increase production costs for rare earth miners like Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co, the country's leading rare earth producer. The company expected its production costs to rise by about 720 million yuan this year.

A rare earth processing company manager, who is also reluctant to be named, said players inside the industry consider the current price level "pretty scary" but speculators outside the industry expect the upsurge to continue.

The manager said it's very difficult to get rare earths directly from the spot market now and many processing companies are reducing their output due to the current price levels.

Share prices of rare earth producing companies were, however, boosted by the exuberant demand.

Shares of Baotou Steel Rare-Earth Hi-Tech Co rose 2.24 percent to 84.1 yuan apiece in the morning session Wednesday, while those of Rising Nonferrous Metals Share Co, Ltd jumped more than 7 percent. Shares of  China Gengsheng Minerals Corp, which got listed at New York Stock Exchange, surged 14.63 percent to $3.37 apiece Tuesday.

With the inflow of speculative funds in the rare earth market, the current prices are gradually coming out of their normal levies and forming price bubbles, Heng said.

"Ultimately, the price hikes will pass on the costs to downstream enterprises and risk the entire industry if they can't afford such hikes," Heng added.