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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 impact the entire rare earth industry chain, even after two years. At the 3rd China Rare Earth Market Symposium held in Chengdu on March 15th, companies involved in downstream applications expressed their concerns: in an effort to cut costs, many competitors have turned to substitutes, leading to a decline in product quality and low operational efficiency—often below 6%. This has pushed the rare earth industry into another difficult phase.
**Challenges: Shrinking Demand Pulls Upstream Supply**
The current crisis within the rare earth industry can be traced back to the sharp price hikes seen in 2011. For example, bismuth oxide prices surged 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. Previously, the price had been stable between 100,000 and 200,000 yuan. Such dramatic increases forced downstream industries to seek alternatives.
In Pujiang, Zhejiang—a region that once used over 6,000 tons of rare earth polishing powder annually for crystal water brick production—the rising cost led manufacturers to replace rare earth materials with alternatives like alumina. As a result, the monthly usage of rare earth polishing powder dropped to about 200 tons, less than half of its previous annual amount.
This trend is not limited to China. Globally, demand for rare earths has also declined. Since the implementation of the quota system in 2005, China’s export volume usually matched its quotas. However, in 2011, actual exports were only 53% of the quota, and in 2012, nearly half of the available quotas went unused.
Dr. Huang Xiaochun, a professor at Hirosaki University in Japan, noted that Japan is actively reducing its use of rare earths or seeking alternatives, which has contributed to lower global demand. Meanwhile, the high prices have also created opportunities for smugglers, with experts estimating that illegal exports may exceed legal ones.
For mining and processing companies, the consequences have been severe. Bismuth oxide prices have fallen back to 400,000 yuan per ton in just two years, while sales have plummeted. Downstream enterprises are still struggling: in 2012, the operating rate of NdFeB magnet producers was under 60%, and output dropped by about 50%. The production of rare earth luminescent materials also fell by half.
The shrinking demand has led to a significant supply-demand imbalance. According to expert data, current smelting and separation output stands at 96,900 tons, but the total capacity is 320,000 tons. Similarly, the output of permanent magnet materials is 90,000 tons, but the capacity is 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 industry must learn from past mistakes. He criticized the unregulated pricing policies that harmed downstream businesses and urged companies to focus on market realities rather than emphasizing China's resource dominance.
Despite the challenges, there is some hope. Experts suggest that Japan's efforts to find rare earth substitutes have not been very successful. Most alternatives affect product quality, so once existing inventories are depleted, overseas demand for rare earths is expected to rise again.
**Changes: Global Rare Earth Development and Recovery**
Due to long-term low prices, China dominated 95% of the global rare earth supply in 2008. However, in 2011, a shortage and sharp price increase spurred unprecedented development in major rare earth-producing countries worldwide. The U.S., Australia, Malaysia, Vietnam, and even South Africa have joined the rare earth sector.
According to Zhang Anwen, the current production capacity outside China ranges from 9,500 to 11,000 tons, with projections reaching 24,900 tons in 2013 and 63,000 tons by 2015. For instance, a U.S. molybdenum company currently produces 3,000 tons and aims to reach 40,000 tons by 2015.
This shift could end China’s monopoly in the rare earth market. In 2012 and 2013, China’s mining plan was around 90,000 tons, with a total capacity of 190,000 tons.
Analysts predict that if overseas mines come online as planned, rare earth smelting will face serious oversupply. Light rare earths will be most affected, while heavy rare earths may remain scarce due to limited resources.
China must now address its own overcapacity. Its downstream application capabilities have always been a weakness. Zhang Anwen suggests that Chinese companies should focus on improving their downstream technologies. Currently, China lags behind foreign standards in terms of scale, precision, and automation in rare earth material production. Many components in rare earth applications still rely heavily on imports.