New Trading Platform To Affect 2012 Rare Earth Price Forecast

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MetalMiner welcomes guest contributor Rahul Jalan, a Chennai-based advisor in Rare Earths forBeroe Consulting India Pvt Ltd. Jalan tracks the global rare earth supply chain and analyzes global procurement developments to help develop state-of-the-art procurement solutions for the company. Beroe specializes in providing procurement intelligence and advisories for a broad swath of industries.

In addition to new rare earth tax permits, China is planning to establish a rare earth trading platform for open trading where China expects legitimate miners to participate.

The Chinese government has begun talks with the country’s rare earths enterprises to initiate the process. Many expect a detailed project plan towards the creation and management of the national reserve to be implemented in next two months.

This trading platform is expected to be based on a mechanism of set price — where the enterprises will have to purchase and reserve rare earths when prices fall to a certain level and can sell when prices rise to a set price. This will ensure that rare earth enterprises have a minimum set profit margin, also significantly reducing the volatility in prices.

During the past few years, Chinese export quotas were not fully utilized due to rare earth availability in black markets at a discounted price. But with continued delays in startup of capacities outside China and reduced illegal mining in China, RE buyers will have no other choice than to utilize the available export quotas.

The REE trading platform, along with new tax permits and other recently implemented policies, will help the government supervise the entire mining process, from production to sale.

New value-added tax (VAT) and limited availability of supply could lead to a spike in rare earth prices. Prices of heavy rare earths (HRE) are expected to increase significantly (approximately 100 percent from current level), while light rare earths (LRE) are expected to just increase marginally (about 35 percent from current level).

These particular price increases are mainly because LRE contributes to 75 percent of the total allocated export quota, whereas medium- to heavy rare earths contribute to just 25 percent.

Moreover, the supply of LRE is forecast to be in surplus by Q4 2012 due to capacity additions outside China, whereas there is hardly any supply coming up outside China for HREs.

–Rahul Jalan

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