Rare Earth Enterprises Develop High-end Products to Survive Overcapacity

"Domestic rare earth overcapacity has been deteriorating, and rare earth enterprises come under severe losses, the operating rate falls short of 40%. We should push structure adjustment, method reform and upgrading, developing high value-added and profitable new materials." Said Hu Yaobin, General Manager of Inner Mongolia Huayi Rare Earth Company in an interview.

Hu said there are over 120 rare earth producers in China for now, with annual oxide capacity a high 320,000 mt/yr, when combined with overseas equipment brought online, market supply far exceeded the 120,000 mt/yr total global demand. Overcapacity and international economic downturn has caused demand to fall sharply, causing domestic rare earth business to deteriorate since 2012. Rare earth oversupply will not ameliorate in the near term.

Hu said the soaring rare earth prices over the past years and China implementing rare earth export quotas to protect environment and strategic rare earth resources triggered market concerns over rare earth supply shortfalls, and allowed overseas countries to accelerate rare earth exploration. Over 200 companies in 40 countries planned over 500 rare earth projects, with the 40 projects in 15 countries including US, Australia, Brazil, Canada and Kyrghyzstan progressing most rapidly. Molycorp's capacity has reached 5,000-6,000 mt/yr, and will increase to 400,000 mt/yr by the end of 2013. Australian Lynas Corp produced its first batch of rare earth products last year, and its capacity will reach 22,000 mt/yr in several years, which can meet about 1/3 of global demand. Merely the two companies will meet global demand outside China after 2015.

Hu reported high rare earth prices forced consumers to seek for substitute or substitute technologies, largely contracting demand for rare earth, and leading to oversupply of the industry. Foreign countries have developed rare earth permanent magnet substitute technologies, rare earth reduction technology and rare earth polishing powder re-utilization tactic. Toyota, for instance, developed rare earth-free motor. Besides, the development and utilization of LED illumination technology constrained demand for rare earth luminescent material.

 "Rare earth oversupply is negative for the industry, but it also forces doemstic rare earth enterpirses to seek for a way out by technology innovation and producing high-end rare earth new material." Said Hu.
　　
Domestic rare earth resources have been explored for over five decades, but are unadvanced compared to international levels, mainly concentrated in permanent magnet material, luminescent materials, hydrogen storage material and polishing powder. Domestic high-end products rely on imports.

Domestic rare earth product exports are majorly preliminary products with low or medium value-added, which accounts for 75% of total exports. In contrast high value-added exports only account for 25% of total national volume, with margins of enterprises only 1%-5%. High-end rare earth rare earth permanent magnetic materials are mainly produced in Japan.

Hu Yaobin believes rare earth enterprises will not survive overcapacity unless they develop high-end products.


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