2024-05-04 15:00:00
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Rare earth elements produced by a refining process. /US Department of Agriculture
Major state-owned companies representing China’s rare earth industry are in tears these days. After a significant decline in sales and net profit last year due to the decline in the international price of rare earths, the company continued to suffer losses in the first quarter of this year (January to March). Northern Rare Earth, the number one company, recorded a surplus of 52 million yuan (regarding 10 billion won), but the scale of the surplus decreased by 94.4% compared to the first quarter of the year last.
Rare earths are a general term for 17 types of elements with unique chemical and electrical properties and are key materials in high-tech industries. It is widely used in the manufacturing of electric vehicles, wind turbines, jet engines and LED displays. It is an essential strategic material for manufacturing combat aircraft and missiles.
China is a major source of rare earths, accounting for 70% of the world’s supply, and uses these rare earths as a means of economic retaliation. It began with a ban on rare earth exports to Japan during the Senkaku Islands (Chinese name: Diaoyu Islands) dispute in 2010. When the United States imposed sanctions on Huawei, it threatened to “control exports of rare earths to the United States.
◇Down 30-40% last year alone
When China weaponized rare earths, the United States, Japan, and Australia began building their own rare earth supply chains by increasing rare earth production in Southeast Asia and operating their own refining plants. As a result, as the supply of rare earths increased and international prices fell, Chinese rare earth companies suffered massive losses.
China Rare Earth Group, which represents China’s rare earth industry, saw its sales decline 5.4% and net profit fall 45.7% last year. In the first quarter of this year, we recorded a loss of 289 million yuan (regarding 55 billion won). Northern Rare Earth, the largest supplier, also announced that its sales fell by 10% and its net profit by 60% last year. Shenghe Resources, a Big 5 company, also saw its net profit decline by 80% last year and recorded a deficit of 216 million yuan in the first quarter of this year.
The decline in international rare earth prices is the main factor contributing to the deterioration of the performance of China’s rare earth industry. Last year, the international price of rare earths fell by 30-40% for each element. The price of neodymium, used to make permanent magnets for electric vehicles, fell 40.4% at the end of last year compared to the start of the year.
◇Rare earth production is increasing rapidly in Myanmar, etc.
According to data from the United States National Geological Survey (USGS), the global supply of rare earths last year amounted to 350,000 tonnes, an increase of 16.7% compared to 2022 (300,000 tons). Myanmar’s production increased by 216%, from 12,000 tonnes to 38,000 tonnes, and China’s production also increased by 14.3%, from 210,000 tonnes to 240,000 tonnes. The United States also increased slightly, from 42,000 tons to 43,000 tons.
In contrast, demand for rare earths has been sluggish. In China, the overall manufacturing industry performed poorly last year due to slow economic recovery even following the Zero Corona quarantine was lifted. As prices continued to fall, fears of deflation arose.
The establishment of independent supply chains by the United States, Japan and Australia has also dealt a blow to Chinese companies. At the end of 2023, China’s rare earth reserves stood at 44 million tonnes, or regarding 40% of the world’s reserves. However, Vietnam (22 million tonnes) and Brazil (21 million tonnes) also have significant reserves. Australia (5.7 million tonnes) and the United States (1.8 million tonnes) are also small. Despite this situation, the reason why China is making so much noise is that it supplies the international market with products far more refined than its reserves, based on its advanced rare earth refining technology.
Rare Earth means “rare soil material”, but in reality it is said to exist in large quantities on the Earth’s surface. However, it is contained in such small quantities that it is not easy to extract. As toxic chemicals are used during extraction, the soil and groundwater are polluted and radioactive materials are emitted. For this reason, even though the United States is the world’s second largest producer of rare earths, it abandoned its own refining facilities and sent all of its rare earths to China for refining.
Chinese President Xi Jinping inspects Jinli, a rare earth producer in Jiangxi province, in May 2019. Vice Premier Liu He (black top rear), who at the time was the top trade negotiator between the United States and China, accompanied the inspection, suggesting that rare earth elements might be used as a means to pressure the United States. /Chosun Ilbo DB
◇“A blow to Chinese rare earth hegemony”
As the threat from rare earths in China intensified, the United States quickly reorganized its supply chain. We provided government grants to restart rare earth refineries in the United States and began refining rare earths ourselves. Australia has also collaborated with Japan and Vietnam to build its own rare earth supply chain.
In a public statement released earlier this year, Northern Rare Earth wrote: “An independent rare earth supply chain is being formed, centered around the United States, Australia, Laos, of Myanmar and Africa,” adding: “This will be a major blow to the global economy. status and influence of China’s rare earth industry. Nikkei Asia also reported: “Competitors hastily established their own supply chains, and China’s domestic economy has also been sluggish, leading to significant sales and net profit losses for Chinese rare earth companies. »
China’s rare earth industry is still competitive, and its production and reserves are overwhelming. However, it has become difficult to remove the card to stop the supply of rare earths at any time. Not only have the United States, Japan and Australia established their own supply chains capable of controlling China, technologies to recover and recycle rare earth elements are also being developed one following another. If you swing your weapon carelessly, you can shoot yourself in the foot like this time.
Nikkei Asia reported on April 29 that China’s rare earth industry is suffering from deteriorating profitability as a new rare earth supply chain forms, centered on the United States and Australia. /Capture Nikkei Asia
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