China launches rare earths exchange platform

By Laura Syrett
Published: Wednesday, 08 August 2012

New trading mechanism will formalise not liberalise rare earths

China launched its first rare earths spot trading platformtoday, led by the country’s largest manufacturer of rare earths materials: Baotou Steel Rare Earth Hi-Tech.

The trading exchange will operate under the name of Baotou Rare Earth Product Exchange Co. Ltd, and will involve many of China’s principal rare earths producers including Xiamen Tungsten, Sichuan Jiangtong Rare Earth Co. Ltd and Inner Mongolia Hi-Tech Holding Co. Ltd.

The aim of the platform, according to Chinese officials, is to trade rare earthsin a way that will regulate prices and ensure greater market transparency.

These constitute important targets in China’s drive to rein in its fragmented rare earths industry, which produces over 95% of the world’s rare earths supply.

Greater control

Industry commentators have reacted to the news by saying that the exchange is a way for the Chinese government to direct its monopoly over global rare earths supply.

American Policy Resource Network’s Dan McGroarty told IM that he did not believe the platform would provide greater visibility into China’s rare earths industry.

“In a textbook case, a trading platform would contribute to market transparency in a price discovery sense,” McGroarty said, “but pricing and policy are not the same,” he added.

“In a country that controls around 95% of global rare earths production, this mechanism is more about control.”

China’s rare earths policy has recently been characterised by announcements of unforeseen regulations, such as the news earlier this week that the country will cut its rare earths capacity by 20% through the imposition of new production thresholds.

“Nobody saw that coming,” McGroarty said. “A trading platform will not provide a window on policy, and variables like taking 20% of capacity out of the market will have far more of an effect on the industry than any trading activity,” he added.

Carole Ferguson, an analyst with UK investment bank Fairfax IS Plc said in an interview with the BBC that in her view the exchange is a way of “formalising and controlling” their hold on the industry, rather than loosening their grip.

Ferguson, however, thought that there would be more transparency in the Chinese rare earths market as a result of having the Chinese exchange.

“I don’t think it’s going to be like other commodities where you see minute-by-minute pricing ... but it is going to be a transparent, formal marketplace,” she said.

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