China Rare Earth Group is about to be established, and the semiconductor market may usher in a new situation

On February 6, according to media reports, “China has approved the establishment of the world’s largest rare earth group. This move aims to maintain its leading position in the global supply chain of rare earth. The new rare earth company will be named the group, and will be established in Jiangxi Province as soon as this month.” The relevant people told the media that the news of the establishment of China Rare Earth Group is true, and Ganzhou Rare Earth Group is one of the founding units.
First of all, rare earth elements are widely used in industrial catalysts, camera lenses, car batteries, mobile phone screens, LED, computers… They were called industrial vitamins in the early years, and are now closely related to new materials.
Take IC as an example. Transistors, resistors, capacitors, diodes and so on all need rare metals (extracted from rare earth). It can be said that modern industry cannot do without it, and high-tech manufacturing industry can not do without it.
In terms of rare earth reserves, China’s rare earth reserves in 2015 were 55 million tons, accounting for 42.3% of the world’s total proved reserves, and it is also the only country that can provide 17 kinds of rare earth metals.
China Rare Earth Group is about to be established, and the semiconductor market may usher in a new situation
Data from the United States Geological Survey, OFweek
In terms of rare earth production, China’s rare earth production in 2015 was 105000 tons, accounting for 87.5% of the world’s total production.
China Rare Earth Group is about to be established, and the semiconductor market may usher in a new situation
NA means no production.
The data is from the United States Statistical Network and the OFweek Wikipedia mapping
China’s rare earth reserves, output and species richness are the world’s number one. It can be said that at this stage, most of the world’s industrial and manufacturing industries are inseparable from China’s rare earth. Does this mean that China’s rare earth industry has a proper bargaining power like foreign oil and iron ore? On the contrary, China’s rare earths have long been in the stage of no bargaining power.
The answer lies in the “past life and present life” of rare earth in China:
Backward refining technology
In the 1960s, China’s rare earth-related refining and separation technology was backward, resulting in the situation that it could only export rare earth minerals at low prices and import rare earth products at high prices. It was not until the 1970s that a group of scientific researchers, including Xu Guangxian, the “father of rare earth in China”, focused on rare earth purification technology, and used extraction technology to break foreign technological monopoly, before China mastered rare earth purification technology.
Environmental damage and price war
Since the 1990s, a large number of local and private enterprises have poured into the rare earth industry, and some enterprises have even illegally mined rare earth minerals, causing shocking environmental damage. From 1990 to 2005, China’s rare earth exports have increased by 10 times, accounting for 80% of the world’s total exports; The export price fell by 36%. The reason behind this is that a large number of enterprises have a price war with each other, clearly occupying the initiative of the seller’s market, but selling the “cabbage price”
Supervision
Since 2000, China has implemented a mining quota system for rare earths, which is issued by provinces or enterprises. Mining beyond the quota becomes illegal, while restricting the issuance of new mining licenses. In 2005, the export tariff of rare earth products was raised and some export rebates of rare earth products were cancelled or reduced. In 2007, rare earth was listed in the 2007 Catalogue of Commodities Prohibited from Processing Trade; In 2009, the Ministry of Industry and Information Technology prepared the Special Plan for the Development of Rare Earth Industry (2009-2015), during which the total amount of rare earth export quotas was controlled within 35000 tons/year.
Until 2021, the Daily Economic News reported that Ganzhou Rare Earth Group would join the establishment of the “new central enterprise” China Rare Earth Group as one of the founding units.
What benefits will the establishment of China Rare Earth Group bring?
Good for the production efficiency, rare earth resources and environmental protection of the rare earth industry as a whole
The rare-earth industry is further integrated to improve production efficiency with scale, and at the same time, backward production capacity is further eliminated, such as production capacity with high pollution; Unified management is conducive to overall production control and enhance the ability to resist risks; In terms of price regulation, we should advance and retreat in unison, increase the ability of external bargaining, and stabilize the domestic rare earth price. In terms of environmental protection, as an important part of new energy technology, rare earth after integration and coordination can play a more important role in the scale market of China’s energy consumption shift to clean energy.
Reference to other bulk commodities
On December 11, 2020, the Platts 62% iron ore price index reached US $160.70/ton, a nine-year high. The continuous contract settlement price of iron ore at the Dalian Commodity Exchange once rose to 1042 yuan/ton, resulting in a sharp rise in the cost of iron ore import. This is only one of the cases of iron ore price fluctuations in recent years. Among China’s bulk commodities, iron ore is particularly special. In 2019, for example, China is the world’s largest importer of iron ore, and the world’s steel production accounts for 53.31%. However, it has no advantages in terms of iron ore purchase price and steel price; When it comes to copper, crude oil, coal and so on, there is a certain price war or the purchase of different products. After the integration of rare earth in China, the ability to resist the fluctuation of financial futures will become stronger.
It is good for the inferior manufacturing industry, especially for semiconductors
It is foreseeable that the rare earth raw materials needed by China’s manufacturing industry and semiconductors have a stable supply and price guarantee. At the same time, the integration of the entire industrial chain may bring about a change from quantity to quality – technological progress, which may drive the development of new materials in the downstream. Since the United States launched a trade war in 2018, China’s chip industry has been emphasizing independent control in raw materials, design, equipment, manufacturing and packaging; Electronic components are also developing forward, and China is at a critical moment of industrial upgrading. At this time, the integration of rare earth resources will undoubtedly inject a boost into the industrial upgrading, especially the semiconductor industry.