Large rare earth firms in China to cut production to prop up prices

After China Northern Rare Earth (Group) High-tech Co., Ltd (600111.SH) took the lead to announce an output cut on Monday, other large rare earth companies also follow suit in the hope of supporting rare earth prices through the production cuts.

So far this week, companies including China Northern Rare Earth (Group), Xiamen Tungsten (600549.SH), China Minmetals Rare Earth (000831.SZ), Rising Nonferrous Metals Co. Ltd. (600259.SH), and China South Rare Earth Group have announced to cut their output of rare earth smelting and separation products this year by about 10 percent of production quotas assigned by the Ministry of Industry and Information Technology (MIIT).

Of the six large rare earth companies designated by the MIIT to consolidate rare earth industry, only Chinalco has not yet to announce a cut in production so far.

The six companies are Baogang Group, China Minmetals, Chinalco, Guangdong Rare Earth Corp, Ganzhou Rare Earth Group, and Xiamen Tungsten. China South Rare Earth Group is a subsidiary of Ganzhou Rare Earth Group.

On Wednesday, the rare earth price index rolled out by the Association of China Rare Earth Industry was 116.7, down 13 percent from 133.7 on January 15, showing the soft prices.

In the traditional peak season for rare earth consumption, prices of some rare earth products fell further in September. Falling demand, oversupply, overcapacity and illegal mining and production are main reasons behind the price downtrend, said the association.

The large rare earth companies' cut in production will likely tighten market supplies, to some degree, to prop up rare earth prices in the short term as they take the lion's share in rare earth production quota assigned by the authorities, said analysts.

However, capacity of the domestic rare earth enterprises is much bigger than the production quota and the progress of industrial consolidation and de-capacity in the industry is slower than expected. If authorities did not increase efforts to crack down on illegal production and announce policies to buy rare earths for state reserves, it would be hard for the rare earth prices to reverse the downtrend, said industry watchers.

The following table shows production quota of the large rare earth companies in 2015.