Beijing seeks more control of supply and prices of rare metals

Mark O'Neill January 03, 2022 08:46

Beijing’s creation last month of a new group that will produce more than a third of its rare metals shows it wants more control over global supply and pricing of these strategic materials and the ability to use them in a trade war.

The new group is a merger of Minmetals Rare Earth, Chinalco Rare Earths & Metals Co and China Southern Rare Group Co. The group has not been named. It is based in Ganzhou, Jiangxi province, a national centre for production of the 17 minerals used in smart electronic devices, electric cars and military equipment.

The biggest shareholder is China State Assets Supervision and Administration Commission, which owns a stake of 31.12 per cent. The new group will control 37.6 per cent of China’s rare metals mining, including nearly 70 per cent of its heavy raw metals. It will own resources in Jiangxi, Sichuan, Hunan, Guangxi and Shandong.

It becomes the second biggest company in the field in the country, after China Northern Rare Earth Group, which is based in Baotou, Inner Mongolia and listed on the Shanghai Stock Exchange.

According to a report by the U.S. Geological Survey in 2015, China has 55 million tonnes in reserves of rare metals, out of the 130 million in the world, ranking number one. It is the only country with reserves of all 17 minerals.

This gives it rare bargaining power in the world market. In 1992, Deng Xiaoping said: “The Middle East has oil, China has rare metals.” In a trade war with the United States, Japan or other countries, they would be a potent weapon.

In a bulletin in May 2019, the National Development and Reform Commission said: “Will rare earths become China’s counter-weapon against the U.S.’ unwarranted suppression? What I can tell you is that, if anyone wants to use products made from rare earth to curb the development of China, the whole Chinese people will not be happy.”

The rationale for the new group was laid out on March 1 last year by Xiao Yaqing, Minister of Industry and Information Technology and formerly head of Chinalco.

“Our rare earths do not sell at the ‘rare’ price but at the ‘earth’ price because of competitive bidding, which wasted the precious resources,” Xiao told a news briefing in Beijing. “The government should play a role in maintaining market order, loosen what can be loosened and control what should be controlled.

“Some companies are producing excessive amounts of rare metals, causing environmental issues and leading to low resource utilization rates,” he said. Other problems are smuggling and illegal mining.

During 2021, prices of rare earths were erratic. That of praseodymium-neodymium reached record levels because of strong demand from makers of electric cars. But those of cerium and lanthanum, used in catalysts for oil refining, were depressed due to abundant supply.

Zhou Lisha, a researcher with the Institute for State-Owned Enterprises at Tsinghua University said that the new group would increase investment, strengthen research and development and promote the sector’s shift toward more value-added and technology-intensive growth.

“It will increase the influence of market leaders, facilitate phasing out of outdated capacity for better allocation of resources and spur high-quality development in the sector,” she said.

In 2014, China accounted for 86 per cent of global output of rare metals. This dominance alarmed countries in the West, whose industries rely on the materials. In the 1980s, the U.S. used to be the world’s largest producer but closed mines because of the high cost and heavy environmental damage.

Since 2014, production abroad has increased faster than in China. In 2020, the U.S. produced 38,000 tonnes, 36 per cent higher than in 2019. Output in Myanmar in 2020 reached 30,000 tonnes, up 20 per cent, and in Madagascar 8,000 tonnes, double that in 2019. China’s production in 2020 was 140,000 tonnes, up six per cent year-on-year, giving it a 58.3 per cent share of global output.

This reduction in market share limits Beijing’s ability to use rare metals as a tool in a trade war. Many of them are used in intermediate and downstream products, often made in third countries, before being shipped to the U.S. Restrictions would also tell customers that China was an unreliable supplier.

In any event, the formation of the new group is a step in preparing Beijing for such a conflict.

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Mark O'Neill

A Hong Kong-based writer, teacher and speaker.