China rare earth producer merger stresses country’s dominant position of critical material supply

The latest merger of rare earth producers in China shows that balance of power in this critical material sector is nowhere near where western governments would like it to be

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The merger announced late last year between some of China’s largest producers of rare earths consolidates even further an industry where the Asia origin remains firmly in the driving seat, leaving western corporations and states on a backfoot.

China Minmetals Rare Earth Co announced in the run-up to Christmas it received government approval to pursue a merger with Chinalco Rare Earth and Metals Co and Ganzhou Rare Earth Group, two fellow domestic producers, forming a new rare earth giant player.

Under the new name of China Rare Earth Group, the new company would control an estimated 70% of China’s rare earth output. This in a country which, alone, accounts for some 90% of global supply of refined rare earth products.

The new entity will be state-controlled, as are its current standalone components.

High strategic and geopolitical significance

Although rare earths are a loose group of 17 metals, resources are particularly coveted for their presence of neodymium and praseodymium (NdPr), terbium and dysprosium, which are used in rare earth magnets for electric motors. They are essential components employed in some of the fastest-growing sectors of the energy transition, electric vehicles and wind power turbines. As such, they have high strategic and geopolitical significance for governments and economies globally.

The merger highlights that the Beijing government is acutely aware of the potential of its rare earth golden goose, and is moving carefully to maintain a tight grip on the sector in line with the country’s political strategy at home and abroad.

The current picture of ever fewer, state-directed large operations could not be more different than the maze of unregulated, often sketchy and sometimes illegal companies the country had only a decade ago.

Internationally, rare earths are still infamous in the investment community for the spectacular boom and bust the sector went through during the last commodity supercycle.

Supply panic triggered by China’s export restrictions in 2009-10 led to prices rising up to five- or six-fold, prompting users to source alternatives until, eventually, the market collapsed, bringing down most of its active and developing players with it.

It was ugly, and for a decade it scared off investors, who would not go anywhere near another rare earth project.

Rare earth magnets

But rare earth magnets are now (and likely will be) in high demand, and ex-China players can be counted on one hand. This is cause for headaches for rest of world companies and authorities.

Both Europe and the United States have been seeking to reduce the dependence on China by supporting existing rest of world (ROW) players and back new projects.

The leading ROW operator, Australia’s Lynas, which runs a refining plant in Malaysia and exports rare earth oxide, has agreements with the US government to bring light and heavy rare earth capacity to the US.

Refining capacity is the crux of the matter here. Rare earth deposits are not particularly scarce and mining rare-earth rich ore bodies is straightforward: a number of mines have sprung up of late in locations on various continents. But facilities for processing the concentrates, separating and refining into oxide and metal production remain heavily concentrated in China.

The only US-based miner, MP Materials, sends much of its rare earth concentrates to China for processing and refining. The company is aiming to set up its own processing capacity (stage II planned for 2022) and move further downstream into magnet production. In September, it inked a cooperation deal with US automaker General Motors “to supply US-sourced and manufactured rare earth materials, alloy and finished magnets” for use in some of the automakers’ models. First volumes are not expected before 2023.

The US government is also looking to support domestic magnet production in the form of tax rebates, although the bill has only been introduced to the House of Representative and has yet to move forward.

Europe is even further behind, with no domestic mining and a handful of processing facilities at various early stages of development.

The European Commission has recently called for more funding in the sector to support rare earth refining and recycling capacity to be set up in the European Union as well as in resource-rich countries (read: not China).

But while those various initiatives are slowly moving forward, China ploughs away with its own consolidation of the sector and solidifies its role of dominant supplier – a position that is not currently under threat by competitors elsewhere.

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