Rare earth rectification or revitalization

Abstract It has been reported that the Ministry of Industry and Information Technology is planning to launch a large-scale investigation targeting domestic rare earth mining, smelting, separation, and trading companies. The initiative will use "special invoices" as a key clue to conduct thorough inspections, register each enterprise individually, and establish a "black and white list" system based on price differences. This move aims to implement categorized management and build a long-term regulatory framework for the rare earth industry.

According to sources, the scope of this cleanup includes not only major mining and processing enterprises in regions like Baotou, Zhangzhou, and Guangdong, but also several trading firms in Shanghai and Beijing, with a total of 1,594 companies involved.

Industry insiders believe that this action marks the beginning of a three-month crackdown on illegal rare earth activities, which was announced by the Ministry of Industry and Information Technology along with eight other government departments on August 7. More measures are expected to follow.

In recent months, the rare earth market has experienced significant volatility. After a sharp rise in prices, the market saw a sudden drop, leading to instability and overinvestment during the policy-driven period. This overreaction is seen as harmful to the sustainable development of the industry. A recent notice from the Ministry of Land and Resources confirmed that the national total control index for rare earth ore mining will remain unchanged this year, while the rock-type rare earth mining quota will be slightly increased.

Rare earths are considered a critical strategic resource in China. To protect resources and the environment, the government has intensified its efforts against the illegal "black" rare earth supply chain. However, driven by high profits, these unregulated operations continue to persist, causing environmental damage and resource waste, while complicating the integration of legitimate rare earth resources.

At the Baotou Rare Earth Forum in August, Ma Rongzhen, Secretary General of the China Rare Earth Association, expressed concern, stating that current illegal rare earth production capacity is nearly equal to that of legal enterprises. Industry experts noted that previous rectification efforts were often localized and lacked focus, resulting in limited effectiveness. This year’s actions, however, have expanded from regional to national scale, offering a more effective approach to managing the "black" industrial chain at its source.

Market participants believe that the ongoing special rectification will lead to a short-term reduction in rare earth supply, potentially supporting price increases. With the nationwide crackdown on illegal operations, rare earth prices are expected to rebound. Recent data shows that some rare earth product prices have risen by nearly 50% in the past two months.

Beyond pricing, analysts suggest that the special rectification is also driving a wave of industry restructuring. The government's policy direction emphasizes the formation of large rare earth groups, laying the groundwork for a more consolidated market structure. Mergers and acquisitions among major players are entering a new phase.

As the industry evolves, smelting and separation capacities are expected to shrink significantly. Additionally, recycling and resource recovery processes are anticipated to become more efficient and structured.

While the government's short-term commitment is clear, long-term success will depend on institutional frameworks. In 2012, due to international market pressures, there was limited time for policy implementation, leading to a surge in strict regulations. These mandatory policies are laying the foundation for future market operations. For instance, the formation of large integrated groups is considered one of the most direct and effective ways to adjust the industry. Although the path of integration is evident, challenges remain in multi-party coordination during implementation. Despite the clarity of the future market structure, the responsibility of major enterprises remains substantial.

From an enterprise perspective, the rectification is seen as beneficial for the industry, especially for raw material suppliers. With fewer "black mines," rising rare earth prices are expected to boost corporate profits.

Looking ahead, some analysts predict that rare earth prices could still see growth in the second half of the year, although pressure may increase toward the end of the year.

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