China Consolidates Its Rare Earths Industry

IT IS DIFFICULT to underestimate the strategic importance of merging the three leading Chinese rare earths producers.

China Minmetals Rare Earth Co., which is part of state-owned China Minmetals Corp., Chinalco Rare Earth and Metals Co, part of state-owned Aluminium Corp. of China, and Ganzhou Rare Earth Group, which is also state-owned but whose production is suspended for environmental reasons, will form a new group under direct central government control.

The new entity, China Rare Earth Group, will control approaching three-quarters of the country’s rare earths output, which accounts for two-thirds of world output.

The consolidation will give Beijing strategic control of the industry and help it manage domestic competition, particularly pricing, to ensure stable and price-certain supplies to end-users throughout the supply chain. Beijing has used the same approach in consolidating rail transport and shipping lines.

China Rare Earth Group will likely at some point also acquire two of the three remaining rare earths producers, Xiamen Tungsten Co. and Guangdong Rare Earth Group Industry Group.

The 17 minerals that comprise the rare earths group are essential for producing components of high-tech goods from electric vehicles to defence systems. The permanent magnets needed to make electric vehicles and wind turbines account for 30% of the demand for rare earths, followed by catalysts (26%) and polishers (13%). Magnets made of rare earth alloys are stronger than those made of alternatives such as iron or aluminium nickel compounds.

Access to rare earths will become even more critical for manufacturing as the world electrifies in its transition to low-carbon economies. Global demand for rare earth elements is forecast to rise by more than 40% if the world gets anywhere near its climate change commitments.

Chinese producers are well placed to fill that additional demand as they are subject to government-set output quotas that have kept capacity utilisation to 50-60%.

The other geostrategic dimension is that while China currently accounts for two-thirds of global output, it has less than two-fifths of known rare earths reserves. The United States and other large importers of rare earths mined or refined in China want to reduce that dependency by turning to alternative suppliers.

Washington now views rare earths in national security terms. In the past, Beijing has threatened to cut off supplies of refined rare earth products to US aerospace firm Lockheed Martin for trading with Taiwan.

There are significant rare earths deposits in California and Australia, but they are more expensive to mine and refining capacity is limited (non-existant in the United States). Beijing has an interest in being able to sway world prices and thus the cost calculations on which mines to expand, reopen or develop.

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