New Chinese invoices could lead to temporary rare earth glut

Rare earth magnets

Media reports out of China suggest the authorities there will introduce a new invoicing system for rare earths as early as this month and is yet another measure to gain control over a highly strategic resource, but in the short-term it could have some unintended consequences.

The new invoicing system is basically aimed at curbing illegal rare earth exports and some industry sources reckon it could lead to a sell-off of rare earths by small domestic traders and producers looking to quickly dump any material before the new measures come into force.

The invoicing system could be structured to be directly linked with individual company export and production quotas while also excluding smaller producers and traders, effectively putting them out of the rare earths business. Such an outcome would be in line with Chinese policy towards domestic rare earth producers, which has been to drive consolidation and therefore make the industry easier to control and regulate.

If a glut of rare earths does occur as a result of the new system, and if Inner Mongolia Baotou Steel Rare Earth Group, China’s largest rare earth producer, doesn’t step in to mop up the surplus material, then this could represent a brief opportunity for consumers to pick up material at relatively cheap prices.

Once those traders and producers are out of the market and their material bought-up, the Chinese grip on the rare earth market is likely to be felt even more keenly.  And the signs are that China wants to curb exports further and hence drive rare earth prices up.  Also, rare earth production outside China, especially for the heavier elements, is still a long way from filling the gap left by falling Chinese exports.

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