China loosens rare earth restrictions

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Richard Heap
January 19, 2015
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This content is from our archive. Some formatting or links may be broken.
China loosens rare earth restrictions

What connects iPhones, missile systems and turbine makers?

Answer: they are all affected by Chinese exports of rare-earth metals. This month, China announced it would end a quota system for exports of these metals. This follows a ruling by the World Trade Organisation last year that said restrictions on these exports by China, which controls 97% of the world’s supplies, were illegal.

Officially, the Asian superpower said restrictions on exports of rare-earth metals, which have been in place since 1999, were to protect the environment by controlling illegal mining of those materials. In actual fact, the policy has been used to keep the price of the metals high and give Chinese manufacturers the edge over foreign rivals.

It is easy to talk of a 'shortage of rare-earth metals', but there has never been a shortage of the materials. The only shortage has come from China’s attempts to control this market.

This system now looks to be coming to an end. China is set to cancel the export quotas by May, which should be good news for manufacturers of direct-drive turbines. These firms have faced
constrained supplies of the metals until 2018, according to the ‘Global Wind Supply Chain Update’ from FTI Consulting last week.

Now, wind may not be a big user of these metals compared to other sectors, but the prices of these metals still affect the cost of projects. The potential for lower prices is good news.

Or at least it would, if we thought that changes in China would lead to lower prices. In our view, China will continue to use its dominant position to control the price of these metals.

It is, for example, looking to cut the size of the rare-earth metals market by 40% by closing illegal mines; and put control of this market into a ‘big six’ suppliers. Hardly a rare-earth free-for-all.

Manufacturers must be alive to these risks. Thankfully, FTI also shows that there is only a handful of manufacturers exposed to fluctuations in the costs of these metals.

The turbines that use these metals most are permanent magnet generator (PMG) direct-drive turbines, with China’s Goldwind and XEMC as leading suppliers. Goldwind owns a 34% stake in JLMAG Rare-Earth Co., which has a two-thirds market share for supplying rare-earth magnets to the wind sector, and this means Goldwind is insulated to an extent from price changes. The restrictions also have little impact on China's XEMC and Dongfang.

The other five manufacturers that FTI identifies as using PMG direct-drive systems are Alstom, IMPSA, Leitwind, ReGen Powertech and Siemens.

Of these, Siemens is most exposed to shifts in China due to its use of rare-earth metals across its business. But, as these metals are now priced at a level where manufacturers can accept them, there appears to be little incentive for suppliers to reduce prices even if supply increases — or for manufacturers to push for price cuts.

So we aren’t getting too excited about price falls. This isn’t the end of uncertainty in rare-earth metals. Companies who have been wary of Chinese control in the past should remain so.

What connects iPhones, missile systems and turbine makers?

Answer: they are all affected by Chinese exports of rare-earth metals. This month, China announced it would end a quota system for exports of these metals. This follows a ruling by the World Trade Organisation last year that said restrictions on these exports by China, which controls 97% of the world’s supplies, were illegal.

Officially, the Asian superpower said restrictions on exports of rare-earth metals, which have been in place since 1999, were to protect the environment by controlling illegal mining of those materials. In actual fact, the policy has been used to keep the price of the metals high and give Chinese manufacturers the edge over foreign rivals.

It is easy to talk of a 'shortage of rare-earth metals', but there has never been a shortage of the materials. The only shortage has come from China’s attempts to control this market.

This system now looks to be coming to an end. China is set to cancel the export quotas by May, which should be good news for manufacturers of direct-drive turbines. These firms have faced
constrained supplies of the metals until 2018, according to the ‘Global Wind Supply Chain Update’ from FTI Consulting last week.

Now, wind may not be a big user of these metals compared to other sectors, but the prices of these metals still affect the cost of projects. The potential for lower prices is good news.

Or at least it would, if we thought that changes in China would lead to lower prices. In our view, China will continue to use its dominant position to control the price of these metals.

It is, for example, looking to cut the size of the rare-earth metals market by 40% by closing illegal mines; and put control of this market into a ‘big six’ suppliers. Hardly a rare-earth free-for-all.

Manufacturers must be alive to these risks. Thankfully, FTI also shows that there is only a handful of manufacturers exposed to fluctuations in the costs of these metals.

The turbines that use these metals most are permanent magnet generator (PMG) direct-drive turbines, with China’s Goldwind and XEMC as leading suppliers. Goldwind owns a 34% stake in JLMAG Rare-Earth Co., which has a two-thirds market share for supplying rare-earth magnets to the wind sector, and this means Goldwind is insulated to an extent from price changes. The restrictions also have little impact on China's XEMC and Dongfang.

The other five manufacturers that FTI identifies as using PMG direct-drive systems are Alstom, IMPSA, Leitwind, ReGen Powertech and Siemens.

Of these, Siemens is most exposed to shifts in China due to its use of rare-earth metals across its business. But, as these metals are now priced at a level where manufacturers can accept them, there appears to be little incentive for suppliers to reduce prices even if supply increases — or for manufacturers to push for price cuts.

So we aren’t getting too excited about price falls. This isn’t the end of uncertainty in rare-earth metals. Companies who have been wary of Chinese control in the past should remain so.

What connects iPhones, missile systems and turbine makers?

Answer: they are all affected by Chinese exports of rare-earth metals. This month, China announced it would end a quota system for exports of these metals. This follows a ruling by the World Trade Organisation last year that said restrictions on these exports by China, which controls 97% of the world’s supplies, were illegal.

Officially, the Asian superpower said restrictions on exports of rare-earth metals, which have been in place since 1999, were to protect the environment by controlling illegal mining of those materials. In actual fact, the policy has been used to keep the price of the metals high and give Chinese manufacturers the edge over foreign rivals.

It is easy to talk of a 'shortage of rare-earth metals', but there has never been a shortage of the materials. The only shortage has come from China’s attempts to control this market.

This system now looks to be coming to an end. China is set to cancel the export quotas by May, which should be good news for manufacturers of direct-drive turbines. These firms have faced
constrained supplies of the metals until 2018, according to the ‘Global Wind Supply Chain Update’ from FTI Consulting last week.

Now, wind may not be a big user of these metals compared to other sectors, but the prices of these metals still affect the cost of projects. The potential for lower prices is good news.

Or at least it would, if we thought that changes in China would lead to lower prices. In our view, China will continue to use its dominant position to control the price of these metals.

It is, for example, looking to cut the size of the rare-earth metals market by 40% by closing illegal mines; and put control of this market into a ‘big six’ suppliers. Hardly a rare-earth free-for-all.

Manufacturers must be alive to these risks. Thankfully, FTI also shows that there is only a handful of manufacturers exposed to fluctuations in the costs of these metals.

The turbines that use these metals most are permanent magnet generator (PMG) direct-drive turbines, with China’s Goldwind and XEMC as leading suppliers. Goldwind owns a 34% stake in JLMAG Rare-Earth Co., which has a two-thirds market share for supplying rare-earth magnets to the wind sector, and this means Goldwind is insulated to an extent from price changes. The restrictions also have little impact on China's XEMC and Dongfang.

The other five manufacturers that FTI identifies as using PMG direct-drive systems are Alstom, IMPSA, Leitwind, ReGen Powertech and Siemens.

Of these, Siemens is most exposed to shifts in China due to its use of rare-earth metals across its business. But, as these metals are now priced at a level where manufacturers can accept them, there appears to be little incentive for suppliers to reduce prices even if supply increases — or for manufacturers to push for price cuts.

So we aren’t getting too excited about price falls. This isn’t the end of uncertainty in rare-earth metals. Companies who have been wary of Chinese control in the past should remain so.

What connects iPhones, missile systems and turbine makers?

Answer: they are all affected by Chinese exports of rare-earth metals. This month, China announced it would end a quota system for exports of these metals. This follows a ruling by the World Trade Organisation last year that said restrictions on these exports by China, which controls 97% of the world’s supplies, were illegal.

Officially, the Asian superpower said restrictions on exports of rare-earth metals, which have been in place since 1999, were to protect the environment by controlling illegal mining of those materials. In actual fact, the policy has been used to keep the price of the metals high and give Chinese manufacturers the edge over foreign rivals.

It is easy to talk of a 'shortage of rare-earth metals', but there has never been a shortage of the materials. The only shortage has come from China’s attempts to control this market.

This system now looks to be coming to an end. China is set to cancel the export quotas by May, which should be good news for manufacturers of direct-drive turbines. These firms have faced
constrained supplies of the metals until 2018, according to the ‘Global Wind Supply Chain Update’ from FTI Consulting last week.

Now, wind may not be a big user of these metals compared to other sectors, but the prices of these metals still affect the cost of projects. The potential for lower prices is good news.

Or at least it would, if we thought that changes in China would lead to lower prices. In our view, China will continue to use its dominant position to control the price of these metals.

It is, for example, looking to cut the size of the rare-earth metals market by 40% by closing illegal mines; and put control of this market into a ‘big six’ suppliers. Hardly a rare-earth free-for-all.

Manufacturers must be alive to these risks. Thankfully, FTI also shows that there is only a handful of manufacturers exposed to fluctuations in the costs of these metals.

The turbines that use these metals most are permanent magnet generator (PMG) direct-drive turbines, with China’s Goldwind and XEMC as leading suppliers. Goldwind owns a 34% stake in JLMAG Rare-Earth Co., which has a two-thirds market share for supplying rare-earth magnets to the wind sector, and this means Goldwind is insulated to an extent from price changes. The restrictions also have little impact on China's XEMC and Dongfang.

The other five manufacturers that FTI identifies as using PMG direct-drive systems are Alstom, IMPSA, Leitwind, ReGen Powertech and Siemens.

Of these, Siemens is most exposed to shifts in China due to its use of rare-earth metals across its business. But, as these metals are now priced at a level where manufacturers can accept them, there appears to be little incentive for suppliers to reduce prices even if supply increases — or for manufacturers to push for price cuts.

So we aren’t getting too excited about price falls. This isn’t the end of uncertainty in rare-earth metals. Companies who have been wary of Chinese control in the past should remain so.

What connects iPhones, missile systems and turbine makers?

Answer: they are all affected by Chinese exports of rare-earth metals. This month, China announced it would end a quota system for exports of these metals. This follows a ruling by the World Trade Organisation last year that said restrictions on these exports by China, which controls 97% of the world’s supplies, were illegal.

Officially, the Asian superpower said restrictions on exports of rare-earth metals, which have been in place since 1999, were to protect the environment by controlling illegal mining of those materials. In actual fact, the policy has been used to keep the price of the metals high and give Chinese manufacturers the edge over foreign rivals.

It is easy to talk of a 'shortage of rare-earth metals', but there has never been a shortage of the materials. The only shortage has come from China’s attempts to control this market.

This system now looks to be coming to an end. China is set to cancel the export quotas by May, which should be good news for manufacturers of direct-drive turbines. These firms have faced
constrained supplies of the metals until 2018, according to the ‘Global Wind Supply Chain Update’ from FTI Consulting last week.

Now, wind may not be a big user of these metals compared to other sectors, but the prices of these metals still affect the cost of projects. The potential for lower prices is good news.

Or at least it would, if we thought that changes in China would lead to lower prices. In our view, China will continue to use its dominant position to control the price of these metals.

It is, for example, looking to cut the size of the rare-earth metals market by 40% by closing illegal mines; and put control of this market into a ‘big six’ suppliers. Hardly a rare-earth free-for-all.

Manufacturers must be alive to these risks. Thankfully, FTI also shows that there is only a handful of manufacturers exposed to fluctuations in the costs of these metals.

The turbines that use these metals most are permanent magnet generator (PMG) direct-drive turbines, with China’s Goldwind and XEMC as leading suppliers. Goldwind owns a 34% stake in JLMAG Rare-Earth Co., which has a two-thirds market share for supplying rare-earth magnets to the wind sector, and this means Goldwind is insulated to an extent from price changes. The restrictions also have little impact on China's XEMC and Dongfang.

The other five manufacturers that FTI identifies as using PMG direct-drive systems are Alstom, IMPSA, Leitwind, ReGen Powertech and Siemens.

Of these, Siemens is most exposed to shifts in China due to its use of rare-earth metals across its business. But, as these metals are now priced at a level where manufacturers can accept them, there appears to be little incentive for suppliers to reduce prices even if supply increases — or for manufacturers to push for price cuts.

So we aren’t getting too excited about price falls. This isn’t the end of uncertainty in rare-earth metals. Companies who have been wary of Chinese control in the past should remain so.

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Not a member yet?

Become a member of the 6,500-strong A Word About Wind community today, and gain access to our premium content, exclusive lead generation and investment opportunities.