| Plan of rare earths mine in Baoutou,
Chinas new rare earths trading platformwill not provide an
immediate solution to the industrys
regulatory challenges, market participants warned at an
industry conference in Inner Mongolia last week.
The trading platform,
also referred to as an exchange, was launched on 7 August at
the Fourth China Baotou Rare Earth Industry Forum under the
name of Baotou Rare Earth Product Exchange Co. Ltd.
The platform is being
led by BaotouSteel Rare Earth
Hi-Tech, Chinas largest rare earths company, in
association with nine of the countrys most significant
producers including Xiamen Tungsten, which each hold around a
14.5% stake in the exchange.
But market sources told
it will be some time before the electronic platform comes into
official operation due to the scale and complexity of the
Despite three years of
preparation, the trading platforms rules and a definitive
list of the products it will deal in have yet to be ironed
According to Chineseofficials, the aims of
the new trading platform is to bring price stability and
transparency to Chinas rare earthsmarket, goals which
have been welcomed by many in the industry.
Speaking at the
conference in Baotou, Tong Maofu, a representative of Dali
Langda Fluorescent Materials Co., said that the exchange would
help to eradicate market distortion.
When China first
entered the international rare earths market, Chinese companies
used highly competitive prices to enlarge their market share,
pushing prices very low, Tong said.
platform will help improve this situation, Tong said, but
cautioned that the new trading mechanism by itself would not be
enough to rebalance the industry.
illegal mining must be controlled and regulated by the
government if rare earth prices are to be fairly determined by
the market, Tong said.
Others in the industry
doubted that the trading platform would deliver increased
transparency and manage volatility.
Ren Jiangyuan, project
manager of the China-Japan joint venture Baotou Santoku Battery
Materials Co., questioned whether the dominance of the exchange
by Chinas largest rare earths producer would lead to a
I wonder whether
buyers of rare earths will still be able to purchase raw
materials at a reasonable price, and whether these prices will
be determined fairly, Ren said.
Ma Rongzhang, secretary
of the Association of China Rare Earth Industry (ACREI),
however insisted that having ten companies with equal stock
rights in the platform would mean no single company could
Fears of a price
monopoly were similarly dismissed by Wang Jinlong, vice
secretary of Anyang Rare Earth Application Association, who
said that one companys influence could not outweigh
More important, Wang
said, were the questions of which and how many rare earth
products could be exchanged using this platform.
Wang Zhongshan, vice
chairman of Nanjing Rare Earth Application Research
Association, criticised the platforms private enterprise
will be meaningful only if it is established, managed and run
by the state, Wang said, adding that the exchange was
irrelevant in an industry that was already actively trading
Wang also said that
small rare earths companies in particular were not interested
in doing business through the platform and would resist any
handling charges levied on deals transacted via the
In an attempt to allay
these concerns, Zhang Zhong, Baotou Steel general manager, said
that the company would work to improve the platforms
He also said that
Baotou would cooperate with futures brokers and financial
companies to establish the global and authoritative rare earth
Critics of the trading
platform also used the conference to voice concerns related to
the exchanges operation.
One issue raised was
that the exchange is only designed for spot business, with no
provision for the negotiation of mid- or long- term business
There are also no
obvious mechanisms for managing the market or providing
warehouse receipts for business conducted via the
It is unclear what the
exchanges total transaction capacity will be, and
questions remain over how many companies will decide to do
business through the exchange.
According to some
industry observers, Chinas southern regions, such as
Guangdong, Sichuan, Jiangxi, Fujian provinces, will find it
difficult to conduct business via the platform which is based
in the northern Inner Mongolia region.
GanzhouRare Earths, the
biggest rare earth company in Jiangxi province which is
the second largest rare earths-producing region in China
did not attend the conference in Mongolia.
Ganzhou also intends to
continue operating independently of the platform, market
sources told IM.