REEs in China: Cornering Market or Victim of its Own Success?

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". . .low production costs in China have made deposits outside China uneconomic"

The latest controversy surrounding REEs: China controls over 93% of the world's REE production. Every year China reduces export quotas and raises the export duties for REEs, yet advanced 'industries of tomorrow' (e.g., wind turbines, hybrid cars) worldwide depend on the availability and affordability of REEs. Important defense applications (anti-missile defenses, etc.) also use REEs widely, making the issue of Chinese-only supply especially sensitive.

China possesses around 50% of the world's REE reserves, and has over the 20 years supplanted the U.S. as the premier world REE supplier, due to some significant factors. First, the development of REE resources has over the years received Chinese government support. Second, at the world's largest deposit of REEs, Bayan Obo (Baiyunebo) in Inner Mongolia, REEs are produced as by-products of iron ore mining, which dramatically lowers their cost. Thirdly, China has also benefited from being naturally endowed with rich, accessible HREE-containing deposits. Lastly, the numerous small players active in mining and processing REEs are highly competitive, while the 'China factor' helps keep production costs among the lowest in the world, in a fashion similar to China's other manufacturing industries.

In a way, China's REE industry has become a victim of its own success. On the one hand, low production costs in China have made deposits outside China uneconomic, while at the same time increasing the range of viable REE applications. With new applications and a multitude of competitive local suppliers, China has also developed a vibrant, sophisticated group of REE-based product suppliers for downstream applications (REE oxides, neodymium magnets, electric motors).

REEs saw significant price increases in 20062008. The global financial crisis introduced some price corrections, and currently suppliers in China do not have any problems meeting market demand. But with increasing demand from booming industries, combined with the Chinese government's plans to limit supply and consolidate the industry, it is certain that new sources of supply outside China will be required.

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