f there’s one place that can make a real claim to be the centre of global rare earth production, it is the city of Baotou in Inner Mongolia. The nearby Bayan Obo mining area in the Gobi desert accounts for approximately half the global production of rare earths, reports the New York Times.
Overseeing the mines is Inner Mongolia Baotou Steel Rare-Earth Group Hi-Tech, putting it at the pinnacle of production of materials that are essential in a range of high-tech industries. Baotou Steel’s considerable presence in the sector looks set to expand, after the company announced last Friday that it had taken over nine more rare earth firms from the Inner Mongolian government, reports Reuters.
Baotou will pay nothing for its majority stakes in the miners, says the newswire, but it will ensure that the newly acquired companies meet higher environmental standards, and introduce better technology.
The Wall Street Journal describes the deals as “the finishing touches” to the firm’s control of the industry in north China, with the next possible step a move further south into Sichuan.
The expanded operator will form the core of a group of companies that will “properly manage the strategic conservation and development of rare-earth resources,” according to a stock exchange filing submitted by the company. These ‘core’ companies include major state-owned firms such as Aluminum Corporation of China and China Minmetals Group.
“Large rare earth groups will get national support at the policy level,” a source close to the Ministry of Industry and Information Technology told Economic Information Daily.
The move is an attempt to impose further order on what Beijing considers to be an industry of increasing strategic importance. This has included efforts to set production quotas and limits on exports. Smuggling activity has also come under greater scrutiny, having once accounted for around a third of rare earth sales on the international market, according to Reuters.
The sector featured strongly on the news agenda a few years ago, when China started to impose export quotas, pushing up prices on the global market (see WiC127). International buyers then started to make more of an effort to secure supply from outside China – with new exploration initiatives then launched around the world.
China’s share of current production has been slightly reduced to about 85%, compared to 95% three years ago, reports the New York Times, particularly as new mines in Australia and US started operating. Prices on many of the minerals have also fallen.
But China still reigns supreme in the processing of rare earths. “It’s amazing people haven’t connected these dots” Kevin Cassidy, CEO of US Rare Earths, explained to the Wall Street Journal. He says that new supplies of rare earths are being mined around the world but reliance on China remains huge because it’s still the place where the 17 elements are ‘processed’ into something useful for industry. For example, China still supplies 80% of the specialised magnets produced from ingredients like neodymium.
Cassidy argues that the Chinese will keep their advantage in processing power over US firms for a while because of their lower costs (in large part, he adds, because their factories are subject to less stringent safety regulations).
Of course, that doesn’t benefit the people living close to the processing facilities, including those in Inner Mongolia.
The New York Times has reported that villages close to refineries between Baotou and the Yellow River are often exposed to health risks and entire populations have been relocated after research that suggested high incidences of cancer.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.