China Rare Earth Producers Merge to Boost Competitiveness

Dec 14, 2014 04:36 AM EST

Rare Earths Smelting Plant in Inner Mongolia Autonomous Region

(Photo : Reuters) A villager looks towards a rare earth smelting plant as he takes a break from shovelling cast-off tailings of crushed mineral ore that contain rare earth metals in Xinguang Village, located on the outskirts of the city of Baotou in China's Inner Mongolia Autonomous Region in this October 31, 2010 picture. The massive Baogang corporation, located on the outskirts of Baotou city, churns out rare earth metals on a vast scale, and villagers living near the smelting plants and a vast tailings dam used to dump the black refuse from ore processing said the rare earths boom was threatening their livelihood and health. Air and water toxins from the plants and dam were poisoning them, their water, crops and children, they said. China supplies 97 percent of rare earths used worldwide, and they go into magnets, bearings and high-tech components that go into computers, vehicles and, increasingly, clean energy technology such as wind turbines and hybrid cars. Picture taken October 31, 2010. TO MATCH STORY CHINA-RAREEARTHS/ REUTERS/David Gray (CHINA - Tags: ENERGY ENVIRONMENT EMPLOYMENT BUSINESS SOCIETY)

A World Trade Organization (WTO) ruling in March against rare earth export quotas from China has failed to reduce the Asian giant's dominance of the industry, according to Rare Earth Investing News. It currently accounts for more than 90 percent of the global supply but has little control of pricing over the commodity used for the production of high-tech gadgets.

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Despite the higher production by the two major rare earths producers outside China, Lynas of Australia and Molycorp of the U.S., their shares still declined by about 85 percent. This development failed to reduce China's share in the global rare earths markets to 65 percent as forecast by China Minmetals to be the likely impact of the WTO decision.

Chinese producers could even become more competitive in 2015 as more rare earths companies merger. On Friday, Baogang Rare Earth Group, based in the Inner Mongolia Autonomous Region in North China. Baogang announced it changed its company name to China North Rare Earth Group Co. Ltd. as a result of its merger with five smaller firms in Inner Mongolia and Gansu Province, reports China Daily.

Baogang is the top producer of light rare earths products in China and a leading rare earths producer and processor in the international market since it owns the largest reserve of rare earths in the world.

Besides Baogang, two other major Chinese rare earths companies - Aluminum Corporation of China and Xiamen Tungsten Co. Ltd. - are expected to also join forces by the end of 2014.

The mergers are considered healthy for Chinese companies, said Yang Zhanfeng, dean of Baotou Research Institute for Rare Earths, since it consolidate resources and lead to favorable business environment for local rare earths companies.

Industry experts pointed out that the WTO ruling is significant, but they doubt if it could change the clout that China enjoys. It would be "borderline delusional," Stormcrow Capital President and Director John Hykawy told Rare Earths Investing News in an older issue, to expect the WTO decision to impact China's dominance of the industry.

Hykawy added that as more Chinese firms merge, production would be overseen by mid-level managers who would likely follow export orders, whether there is a WTO quota or none, in the hope of being promoted to higher positions.

Tagsrare earths, Baogang, WTO ruling