Malaysian stocks got off to a racing start Monday after the ruling coalition secured another term in office by a narrow margin. The result removed the risk of an opposition victory or a hung parliament that would have tested the country’s democratic institutions. Malaysia’s currency rose to a 22-month high on the news; stocks rose 7% in early trading. Government-backed companies led the index higher. But the most dramatic market reaction came in Sydney where investors piled into miner Lynas Corp., which has built a rare earth refinery in Malaysia in the face of local opposition. Opposition candidates had promised to reexamine the mining license. Now it seems that the $800 million plant in Kuantan, which opened in February, should have a smoother run. Shares in Lynas rose 15% to A$0.57.

Lynas stock got a boost in March when a court in Malaysia threw out a lawsuit by environmentalists. But the looming election kept the company on edge, given the support from opposition candidates for the anti-mine campaign. Lynas says that the mine’s impact will be limited and that it has complied with Malaysia’s conservation laws. China is the largest producer of rare earth metals and has imposed export quotas in past years, stoking interest in a diversification of supply. The Lynas plant in Malaysia was approved last November after a lengthy approval process.


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Five leading enterprises are involved in the consolidation plan in the rare earth industry in China, including Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Company, Guangdong Rising Nonferrous Metals, Chalco, Minmetals and Ganzhou Rare Earth. Consolidation of the five leading companies with local rare earth enterprises a crucial step to the industrial consolidation. The consolidation plan is expected to be announced around August. Xiamen Tungsten and China Non-ferrous Metal Industry’s Foreign Engineering and Construction Company are unexpectedly excluded in the consolidation plan.

Many market players believe the industrial consolidation will still face many difficulties, especially consolidation between SOEs and local resources.

5 Enterprises Included in the Consolidation
As local rare earth resources consolidation was finished, further integration is implemented across the industry. The five leading enterprises initially included in the rare earth integration plan are local leading enterprises including Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Company, Guangdong Rising Nonferrous Metals, and Ganzhou Rare Earth and SOEs including Chalco and Minmetals.

Xiamen Tungsten and China Non-ferrous Metal Industry’s Foreign Engineering and Construction Company, and Jiangxi Copper are excluded in the list of consolidation, and market players believe the likelihood of integration between each other enterprise is very low.

China announced the Proposals Regarding Promoting Sustainable and Healthy Development of the Rare Earth Industry on May 10th, 2010, requiring China should form a large enterprise-oriented rare earth industry, with the consolidation ratio of the top three ion-absorbing type rare earth enterprises in south China reaching 80%.

Baotou and Ganzhou are major domestic rare earth producing regions, with rare earth output value accounting for 2/3 of total domestic rare earth output value. North China has formed rare earth agglomeration with core enterprise of Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Company, while high strategic value ion-absorbing type rare earth in south China lack core enterprise and business are disordered.

                  

Rare Earth Consolidation Facing Difficulties
The manager of the MIIT expressed the rare earth consolidation will be implemented locally first, and then nationwide, which is favorable for the covering of the rare earth industry chain, environmental protection and the realizing of sustainable development target.

China has commenced rare earth consolidation in Jiangsu, Hunan, Yunnan, Guangdong and Sichuan last year.

The MIIT Deputy Director Su Bo said the rare earth industry will put emphasis on acceleration of large rare earth enterprise construction. That market understands rare earth consolidation will be implemented beyond local levels.
The rare earth consolidation between SOEs and local enterprises are still facing difficulties, but local enterprises will discuss how to cooperate with SOEs.

Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Company is absorbing backbone enterprises in Sichuan and Shandong to construct China Northern Rare Earth Group jointly with Gansu Rare Earth New Materials Company,


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The China Times reported that the MIIT is now making plans for pushing the rare earth consolidation. But no details and precise timing of the plan was released.

Nevertheless, Guangdong Rare Earth Industry Group and Chalco may play the most important part in the rare earth consolidation. Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Company is now developing into Gansu, Shandong and Sichuan after integrating resources in Inner Mongolia.

A person from the MIIT familiar with the issue reported the leadership is in favor of building local rare earth groups, which pushed the formation of regional rare earth economies.

Distribution Features of China Rare Earth

Distribution Imbalance
Light rare earth ore mainly distributes in north China regions such as Baotou, Inner Mongolia and Liangshan, Sichuan, while ion-absorbing type medium and heavy rare earth ore mainly distributes in Ganzhou, Jiangxi and Long'an, Fujian.

Various Categories
Rare earth ore categories include bastnaesite, monazite, ion-absorbing ore, xenotime and fergusonite, with ion-absorbing type medium and heavy rare earth ore very important.

Light Rare Earth Ore-Associated Radioactive Element Effects Environment Significantly
Light rare earth ore can be explored in large amounts, but the treatment of radioactive element such as thorium is very difficult, which will significantly affect people's health and environment.

Ion-absorbing Type Medium and Heavy Rare Earth Ore Hard to Explore
Ion-absorbing type medium and heavy rare earth ore is adsorbed in the earth in the form of ion, and is dispersed and difficult to exploit.  


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Global demand for rare earth metals from China climbed in the first quarter due to falling prices despite domestic producers and processors reporting losses.

Statistics from the General Administration of Customs suggest that rare earth exports rose 55 percent in March from February to 1,718 metric tons.
 
Export volume in the first three months grew 47.3 percent to 3,916 tons. But in the same period, export value dropped 71 percent to $91.9 million.
 
Deputy Secretary-General of the China Rare Earths Industry Association Chen Zhanheng said the growth in exports volume stems from a price decline in 2011, stimulating overseas buyers who had used up their reserves. Chen said there are no signs of a quick rebound from falling demand at home and abroad, but he believes the market will grow as production is being regulated and prices continue to fall.
 
Chen Jiazuo, an analyst from the China Nonferrous Metals Information Network, said it only took two years for the industry to deteriorate from its peak, yet current prices are still higher than the lowest point in the past 10 years.
 
Only half of the export quota in 2012 was used due to the price surge in 2011, which deterred buyers. The value of exports in 2012 fell 66.1 percent year-on-year to $906 million.
 
Rare earths, which comprise 17 metallic elements, are used in many technological products, including missile systems.
 
China supplies more than 90 percent of the world's rare earths, and has nearly one-third of the known global reserves.
 
In the first quarter, Baotou Steel Rare-Earth (Group) Hi-Tech, the country's largest rare earth producer, reported revenue of 2.29 billion yuan ($366 million), down 35.7 percent from a year ago. Its net profit fell 79.7 percent to 245 million yuan. Its first quarter report said prices for its main products have dropped more than 50 percent.
 
Last year, the firm saw a sharp drop in net profit and revenue due to falling demand and a slowing economy.
 
Net profit dropped 56 percent to 1.51 billion yuan year-on-year, while revenue fell 19 percent to 9.24 billion yuan as a result of low demand in the rare earth market and a price drop.
 
Baotou Steel resumed production on Feb 23 after a four-month halt due to the price slump. Another producer, Rising Nonferrous Metals Co Ltd, saw a first quarter loss of 29 million yuan due to a drop in operating revenue and gross profit.
 
Last month, China Minmetals Rare Earth Co Ltd announced a 47 percent drop in revenue, from 7.6 billion yuan in 2011, with net profit falling 74 percent in 2011.
 
Many downstream enterprises are suffering due to the price surge in 2011, with some closing their operations, Chen said. Rising prices have forced many manufacturers to switch to other materials or seek new markets for rare earths, he said.
 

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