The Chinese government is attempting to support domestic businesses by shoring up rare earths market conditions.

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This includes stepped up enforcement of environmental rules at rare-earth metal plants and crackdowns on illegal mining and smuggling.


Beijing carried out a series of spot inspections on environmental measures at factories last summer. Teams of experts tested wastewater and examined pollution-reduction measures at rare-earths smelting and separation plants. Operations at facilities that did not meet standards were suspended.

Those inspections covered a total of eight provinces and regions, such as Inner Mongolia, Heilongjiang and Jiangsu.

Japan is still wary of Chinese production due to a 2011 unofficial boycott of selling raw rare earths to the islands by Chinese producers. So much so that the Japanese have taken an interest in keeping Australian rare earths miner Lynas Corp. alive and helped it restructure its debts last month.

Now, some Chinese producers of rare-earth magnets are seeking to use this month’s expiration of a key patent held by Hitachi Metals Ltd. to expand exports of magnets used in products from motors to smartphones. The 17-year-old patent defines the structure of a specific type of neodymium magnet. Its expiration paves the way for previously blocked Chinese producers to sell to U.S. customers, according to Sun Baoyu, chairman of Shenyang General Magnetic Co. His company has formed an alliance with six Chinese producers to promote their products and fight Hitachi over other patents that the Japanese company says largely prevent rivals from making the magnets.

The expired U.S. patent is number 5,645,651, which describes a magnet which uses neodymium and cobalt.

The end of the patent will pit the seven producers in the alliance, and potentially others who try to tap into the market, against Hitachi and eight Chinese companies that have paid for the right to make and ship the magnet. Neodymium magnets are used in both smartphones and hybrid cars and a price war in their production could potentially bring down the cost of those end-use products.

Hitachi holds more than 600 patents for rare-earth magnets globally, some of which it acquired after taking over Sumitomo Special Metals Co. in the 2000s.

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The Rare Earths MMI did not move for the sixth consecutive month, showing just how much the market has stabilized since the last China-Japan rare earths dust up.

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When commodity producers talk down the market you know prospects really aren’t very good for a price rise.

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Iván Arriagada, chief executive at Antofagasta was interviewed by the Financial Times while at the recent LME week and is quoted as saying Copper will continue to lag behind as other commodity prices rebound, adding the market is likely to remain oversupplied for at least the next three years. While demand for copper in China will grow at around 3% next year, that growth will be outweighed by oversupply.

Chinese demand this year has been bolstered by a surprise stimulus boost early this year but many are expecting that to fade by Q2 next year resulting in a surplus of 192,000 metric tons in 2017, up from 185,000 mt this year, according to Reuters.

“We continue to forecast a surplus market for both 2016 and 2017,” said Grant Sporre of Deutsche Bank, “This is sufficient to … continue to weigh on prices.”

A prediction Arriagrada would appear to support when he said “we may see events where the price drops further.”

Although prices are near year-highs, at least since March, imports of copper by China fell this month to their lowest since February of last year and the domestic market remains at a discount to the international market.

The Moderate Medium Term

The current increase in prices has caught the market by surprise (but not us). Copper hit a 15-month high last week after powering to $5,443 per mt, not on some sudden strong fundamentals, but on speculator buying. What’s driving the current surge in prices appears to be a disconnect in the copper market.

‘Refined copper is said to be broadly in balance, the International Copper Study Group and the International Wrought Copper Council both estimate that the refined market is in balance, a position ironically supported by the London Metal Exchange and Shanghai Futures Exchange which has seen almost unprecedented rises and falls in inventory this year.

Yet, at the end of October, the net year to date movement in all global exchange copper stocks (across the LME, SHFE and Chicago Mercantile Exchange Group warehouse systems) has been a rise of just 22,500 mt, in a global copper market of 23 million mt. Even so, current speculator enthusiasm aside, in a poll of analysts at LME week, Reuters found it hard to find anyone who was bullish about copper in the medium term or about the pace of infrastructure investment in China next year.

Nearly everyone is quoted as saying they expect both demand, and hence prices ,to ease from about Q2 2017 onward. The expectation seems to be that surplus concentrate will make its way through to the refined market next year and that the two cannot exist as parallel universes indefinitely.

Copper’s Long-Term Future

Further out there are better prospects for copper. Capital expenditures have been slashed and for firms like Antofagasta and mining is all about cost containment at the moment. The firm has two projects involving expansion at its operations at Pelambres and Centinela, which could add 200,000 mt per year but the firm is on no hurry and has given a deadline of the end of next year to announce if it plans to proceed or not.

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Long-term grades are falling and potentially developments like electric cars are cited by producers as cause for rising demand but that is still some way down the line. As the FT points out, state-owned producer Codelco needs to spend $17 billion over the next four years just to maintain its copper output due to declines in the grade of copper extracted from its current mines. If those funds are not spent, the supply surplus will dwindle but for now it remains and so, too, will prices around current levels, if not lower in 2017.

Many of the promises made by Donald Trump in the recent presidential election campaign have been vague on detail and promptly been followed by backtracking or denial, but one of the policies president-elect Trump as espoused consistently from the beginning has been his position on the Transpacific Trade Partnership (TPP).

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President Obama saw TPP as a key component of his pivot to Asia. The agreement was intended to lower tariffs and sets standards on a broad range of trade issues, from labor and environmental regulations to the treatment of intellectual property. More than anything, TPP was intended to create the framework for developing free-trade within Southeast Asia and, in partnership with the U.S., that most closely adhered to U.S. policies. It was intended to establish U.S. economic leadership in the region.


Trump, on the other hand, saw TPP as a threat to U.S. industry and, as part of his wider objection to globalization, he has been adamant since the start of his campaign that he would sooner see hell freeze over than TPP, in its current form, implemented.

free trade, 3D rendering, blue street sign

Is this the exit for the U.S. and free trade in Asia? Source: Adobe Stock/Argus.

TPP was to have been the biggest regional free-trade agreement in history and the biggest trade deal struck since the 1994 completion of the Uruguay round of the General Agreement on Tariffs and Trade (GATT) world trade talks that created the World Trade Organization.

China Steps In

According to Reuters, the 12 countries involved include Australia, Canada, Chile, Japan, Malaysia, New Zealand, Peru, Singapore, Vietnam and Mexico in addition, of course, to the U.S.A, but pointedly excluding China. The hope was, at some stage, that China would join the agreement as well but now with the prospects looking so negative for the U.S. to take TTP forward, China is stepping into the vacuum and seeking support for a Beijing-led Asia-Pacific Free-Trade area at an upcoming regional summit in Peru later this month.

President Xi Jinping’s personal involvement illustrates how seriously China is backing this idea. As the U.S. turns it back on TPP this is an opportunity for Beijing to set the agenda. China has proposed the Free Trade Area of the Asia-Pacific (FTAAP) and the Regional Comprehensive Economic Partnership (RCEP), which includes an even larger group than would have been involved in TPP. The 10 members in the Association of Southeast Asian Nations would be joined by China, Japan, South Korea, India, Australia and New Zealand to form the RCEP Group.

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All this may not bother Trump, but in the years to come it may bother U.S. companies that find themselves on the outside of a trade club they could have established more to their own agenda. Not all free trade is good trade, but at least if you get to shape the rules you can mitigate the downside and maximize the upside. As Britain will find with the European single market post-Brexit, if you are outside the club you get no say in the rules.

The Dow Jones Industrial Average opened at a record high today, driven by financial stocks, after the index capped off its best week since 2011 following Donald Trump’s unexpected victory in the U.S. presidential election.

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Since Trump’s triumph last Tuesday, investors have been betting on his campaign promises to simplify regulation in the health and financial sectors and boost spending on infrastructure.

The financial index rose 2.18% to its highest level since 2008. Goldman Sachs and JPMorgan Chase provided the biggest boost to both the S&P 500 and the Dow. Stock markets around the world were affected by a continued selloff in the global bond market as investors looked for more clarity regarding Trump’s policies.

Chinese Steel Output Increases in October

China’s steel output rose 4% to 68.51 million metric tons in October from a year ago, government data showed, as steel mills in the world’s top producer further expanded production.

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Total output for the first 10 months of 2016 edged up 0.7% to 672.96 mmt, data from the National Bureau of Statistics also showed on Monday.

China has come in ahead of schedule on its target of cutting 45 million metric tons of steel capacity in 2016, reaching the goal before the end of October, the country’s state economic planner said on Friday.

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China also hoped to achieve its 2016 goal of cutting 250 mmt of coal capacity before the year-end, Li Pumin, general secretary of the National Development and Reform Commission (NDRC), told a news briefing.

Oil Surplus Poised to Continue in 2017

The oil market surplus may run into a third year in 2017 without an output cut from the Organization of Oil Exporting Countries, while escalating production from exporters around the globe could lead to relentless supply growth, the International Energy Agency said on Thursday.

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In its monthly oil market report, the group said global supply rose by 800,000 barrels per day in October to 97.8 million bpd, led by record OPEC output and rising production from non-OPEC members such as Russia, Brazil, Canada and Kazakhstan.

Two weeks ago, Japanese lenders and a hedge fund struck a deal to save Australia’s Lynas Corp., the only major rare earths producer outside China, from collapse. In doing so, they cut its interest costs and gave Lynas nearly four years breathing room to pay off its debt.

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State-owned Japan Oil, Gas and Metals National Corp. (JOGMEC) and Sojitz Corp. did so to ensure a supply of rare earths from outside China, the world’s biggest producer of the elements. Japan’s interest is understandable. It’s the nation that Chinese producers unceremoniously boycotted in 2011 back when rare earths prices were flying high. Even though that’s not the case today, Japanese manufacturers have no interest in ever being dependent on China’s rare earths industry again. After the collapse of Molycorp, JOGMEC even agreed to slash the interest on its loan to Lynas to 2.5% from 6%.


Lynas will not have to make any fixed repayments on the $203 million it owes to Sojitz and JOGMEC until 2020. It previously faced staged repayments up to 2018.

Our Rare Earths MMI held at 17 for the fourth straight month, the textbook example of a stagnant market with flat demand and more than enough supply.

The one bright spot in the sub-index continues to be the permanent magnets used in electric motors for wind turbines and other products. These elements include neodymium and samarium.

Research and Markets recently published its “Permanent Rare Earth Magnets Market – Drivers, Opportunities, Trends & Forecasts: 2015-2022” report. It said that the global permanent rare earth magnets market is expected to grow at a CAGR of 13.2% during the forecast period 2016-2022 to reach $41.41 billion by 2022.

For Lynas, and the companies that have invested in it, this market offers hope of salvation but we would exercise caution as always. China is attempting to consolidate its rare earths industry the same way it is attempting to do so with steel. The problem is that Beijing still exerts relatively little control over small, provincial mines that fly under the rardar of national mining standards.

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Permanent magnet demand has always been strong but it will need to grow by quite a bit to exhaust current Chinese production and, just like with steel, the consolidation process is slow and sure to be manipulated by the economic growth needs of the People’s Republic.

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UPDATE: Ruling from Commerce detail on 5050 aluminum extrusions now included in this post.

The Department of Commerce is expected to launch a formal investigation today into whether Chinese steel companies are shipping steel through Vietnam to avoid U.S. import tariffs, a person familiar with the matter told the Wall Street Journal.

Steelmakers Asked for Vietnam Investigation

The decision to investigate follows a complaint in September from U.S. steelmakers, and is an escalation of U.S. efforts to stop a glut of China-made metal from flooding U.S. markets. The inquiry could result in new tariffs on steel imported from China via Vietnam, under rules designed to prevent such a tariff-evading practice, known as circumvention. Read more

China would probably argue that it gets bad press when it comes to environmental issues.

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Not surprisingly. China is said to be the world’s largest emitter of greenhouse gases, having overtaken the U.S. in 2007, and was responsible for 27% of global emissions in 2014. It’s right that it gets a lot of attention.

Largely due to the consumption of about half the world’s coal, China is the world’s largest source of carbon emissions, and the air quality of many of its major cities fails miserably to meet international health standards. Life expectancy north of the Huai River is said by the Council on Foreign Relations (CFR) to be 5.5 years lower than in the south due to air pollution, while water and soil pollution are equally severe.

China Cracks Down

Yet for all that, or maybe because of it, China is taking considerable strides to address its problems. A recent article in the South China Morning Post reports on the tough stance environmental protection bodies in China are taking with large industrial groups. Read more

Back pedal 12 months and the commodities landscape looked rather different.

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Prices had been falling since 2011 and the trend carried through into early 2016. Many worried that the declines were set to continue through this year. 10 months in, the picture looks brighter: Chinese demand for metals has picked up and cost-cutting by producers has boosted profitability.

Commodities Are Up… But Why?

The S&P GSCI Commodities Index has risen from a low of 271.8 in late January to 372.4 today, a rise of 37%, aided by a doubling in oil prices during the period. Mining stocks are among the better-performing asset classes of 2016 and were doing well even before Brexit boosted the fortunes of London-listed stocks. There is a sense of cautious optimism about a recovery in commodities much of which has to do with improved sentiment toward China. Read more

China reported last week that its economy grew at 6.7% in the third quarter compared with a year ago.

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That’s bang on the money where most analysts had expected it to be and was identical to the GDP figures posted in the first and second quarters of the year. The consistent numbers have caused some to question the accuracy. A New York Times article suggests that a lending binge in China this year has helped to sustain growth and create some uplift for the property market. Read more