BEIJING, March 30 (Xinhua) -- Prices of rare earth metals and
shares of related Chinese companies have been on a bull run in
China on the eve of the introduction of a key resources tax
expected in April.
Since the beginning of this year, average prices of 17 elements
that are vital ingredients in high-tech products have doubled in
China from the end of 2010 as speculative funds are now suspected
of targeting the industry for huge returns, analysts said.
Prices of two light rare earth elements, praseodymium oxide and
neodymium oxide, soared about 120 percent from the end of last year
to 459,000 yuan (about 70,000 U.S. dollars) per tonne and 575,000
yuan per tonne, respectively, last Friday, according to data of
Hwabao Securities.
Prices of two other heavy rare earth materials, dysprosium oxide
and terbium oxide, were 104 percent and 81.5 percent higher than at
the end of last year.
"Speculators bought all rare materials available on the market,
regardless of their prices," said an executive of a large rare
earth company in the city of Ganzhou, east China's Jiangxi
Province.
Ganzhou is one of China's largest rare earth producing regions,
along with Baotou, a city in the northern Inner Mongolia Autonomous
Region.
"The enormous funds began entering the industry shortly after
the Chinese Lunar New Year, buying in large numbers in Ganzhou and
Baotou," said the executive, who asked not to be named due to the
sensitivity of the issue.
Rare earths, a collection of 17 elements, are important
ingredients in manufacturing sophisticated products, including
flat-screen monitors, electric car batteries, wind turbines,
missiles and aerospace alloys. However, mining the metals is very
damaging to the environment.
"Judging from years of experience since I've been in the rare
earth industry, such buyers are not our real downstream clients,
but speculators who are hoarding the materials for profiteering
purpose," he said.
According to the executive, such speculative funds came mainly
from Wenzhou and other cities in eastern Zhejiang Province.
As the world's largest rare earths producer and exporter, China
adopted a series of policies for the industry this year to balance
environmental protection needs and industrial demands, including
stricter emission limits on miners, cuts in export quota and a
resources tax.
China supplies more than 90 percent of the global rare earth
demand. However, its reserves account for about one-third of the
world's total.
"Not only rare earth processing companies rushed to buy raw
materials, investors with a great amount of speculative capital
also chased after the minerals thanks to the wide expectation of
price hikes," said Heng Kun, a chief analyst with Essence
Securities.
Heng said the huge influx of money into the rare earth industry
to hoard raw materials has caused a supply shortage in the country
and pushed up prices further, which again drew the attention of
speculators that bet on hikes amid the country's new industry
policies this year.
Starting April 1, every tonne of mined light rare earths in
China will be taxed 60 yuan while each tonne of medium and heavy
rare earths will be taxed 30 yuan.
The newly introduced tax will increase production costs for rare
earth miners like Inner Mongolia Baotou Steel Rare-Earth Hi-Tech
Co., the country's leading rare earth producer. The company
expected its production costs to rise by about 720 million yuan
this year.
A rare earth processing company manager, who is also reluctant
to be named, said players inside the industry consider the current
price level "pretty scary" but speculators outside the industry
expect the upsurge to continue.
The manager said it's very difficult to get rare earths directly
from the spot market now and many processing companies are reducing
their output due to the current price levels.
Share prices of rare earth producing companies were, however,
boosted by the exuberant demand.
Shares of Baotou Steel Rare-Earth Hi-Tech Co. rose 2.24 percent
to 84.1 yuan apiece in the morning session Wednesday, while those
of Rising Nonferrous Metals Share Co., Ltd. jumped more than 7
percent. Shares of China Gengsheng Minerals Corp., which got listed
at New York Stock Exchange, surged 14.63 percent to 3.37 U.S.
dollars apiece Tuesday.
With the inflow of speculative funds in the rare earth market,
the current prices are gradually coming out of their normal levies
and forming price bubbles, Heng said.
"Ultimately, the price hikes will pass on the costs to
downstream enterprises and risk the entire industry if they can't
afford such hikes," Heng added. Enditem
