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The rare earth industry is in deep trouble: high prices lead to shrinking demand
The "pain" caused by high-priced rare earths continues to have a deep impact on the entire rare earth industry chain over the past two years. At the 3rd China Rare Earth Market Symposium held in Chengdu, Sichuan on March 15th, companies involved in downstream applications of rare earths expressed their concerns. They stated that in an effort to cut costs, many competitors are using a large number of substitutes. This shift has led to declining product quality and low operational rates, with some enterprises operating at less than 6% capacity. As a result, the rare earth industry is once again facing significant challenges.
**Challenges: Shrinking Downstream Demand Pressures the Upstream Sector**
The current crisis in the rare earth industry traces back to the sharp price increases seen in 2011. For example, bismuth oxide prices skyrocketed from around 200,000 yuan per ton at the start of the year to as high as 1.47 million yuan per ton within just seven months. This dramatic rise put immense pressure on downstream manufacturers, who began seeking alternatives to reduce costs.
In Pujiang, Zhejiang—a region that once accounted for more than half of the rare earth polishing powder market—companies used to consume over 6,000 tons annually. However, as rare earth prices surged, they started replacing it with materials like alumina. Today, the monthly usage has dropped to about 200 tons, which is far below historical levels.
This trend is not limited to China. Globally, demand for rare earths has declined as countries like Japan actively seek alternatives. According to Dr. Huang Xiaochun from Hirosaki University in Japan, Japan is reducing its reliance on rare earths or exploring substitutes, which has led to lower overall demand. Additionally, smuggling has become a major issue, with experts estimating that illegal exports exceed legal ones.
For mining and processing companies, the high prices were short-lived. Within two years, bismuth oxide prices fell back to around 400,000 yuan per ton, while sales plummeted. Meanwhile, downstream industries still struggle. In 2012, the operational rate of NdFeB magnet manufacturers was under 60%, and output had dropped by nearly half. The production of rare earth luminescent materials also fell by 50%.
The imbalance between supply and demand is now evident. Current smelting and separation output stands at 96,900 tons, but the total capacity is as high as 320,000 tons. Similarly, downstream permanent magnet material production is at 90,000 tons, with a capacity of 250,000 tons. Overcapacity is roughly three times the actual output.
Zhang Anwen, deputy secretary general of the China Rare Earth Society, emphasized that the lack of learning from past mistakes—such as unregulated pricing—has harmed downstream industries. He urged companies to respect market forces rather than focusing solely on resource control and production volume.
On a slightly positive note, experts suggest that Japan’s search for substitutes has not been entirely successful. Most alternative methods negatively impact product quality, so global demand for rare earths may rise once existing inventories are consumed.
**Opportunities: Global Rare Earth Development and Recovery**
Due to long-term low prices, China dominated over 95% of global rare earth supply in 2008. However, the 2011 shortage and subsequent price surge prompted a wave of new development in other countries. The U.S., Australia, Malaysia, Vietnam, and even South Africa have entered the rare earth sector.
According to data from Zhang Anwen, non-Chinese rare earth producers currently have a capacity of 9,500 to 11,000 tons. By 2013, output is expected to reach 24,900 tons, with a target of 63,000 tons by 2015. For instance, a U.S. molybdenum company plans to increase production from 3,000 to 40,000 tons by 2015.
This shift signals the end of China’s dominance in the rare earth market. While China’s planned mining output in 2012 and 2013 is around 90,000 tons, its total capacity remains at 190,000 tons.
Analysts predict that if overseas mines come online as planned, rare earth smelting will face severe oversupply. Light rare earth prices could be hit hardest, while heavy rare earths may remain scarce due to limited resources.
As overcapacity becomes a reality, China must focus on improving its own domestic consumption. The country’s downstream rare earth applications have long been a weak point. Zhang Anwen suggests that Chinese companies should prioritize innovation in downstream technologies. Currently, China lags behind in advanced production equipment and post-processing capabilities, with many components still relying on imports.