New Chinese Mega Rare Earths Company Could Dominate Entire Industry

A new merger between China’s largest rare earth producers is set to create one mammoth company in an industry that is becoming more critical and competitive every year. Minmetals Rare Earth Co. has said that it will be merging with two of the country’s other top rare earth producers to create a new company that will operate under the state assets regulator. The deal will see Minmetals Rare Earth, Chinalco Rare Earth & Metals Co, and China Southern Rare Earth Group merge into a new company. Two other companies will be included in the new entity: Jiangxi Ganzhou Rare Metal Exchange Co, a new bourse for spot transactions, and Ganzhou Zhonglan Rare Earth New Material Technology Co.

This will give the new company control over a wider range of assets, and might allow the company to control pricing. This could bring more tensions to the table between the United States and China.

China currently controls 85-90% of the rare earths processing industry, and there is a reliance on China by the United States as a result. The creation and announcement of the approval of the new larger company by the State-owned Assets Supervision and Administration Commission (Sasac) could intensify the competition in the space.

Light vs. Heavy

There is some competition for the rare earth smelting and separation (processing into a form used by manufacturers) industries. This is divided into the light rare earths and heavy rare earths. Light rare earths are easier to process and are viewed as the lesser rare earths. There is a division between China and Southeast Asia, versus Japan and North America. On the other hand, heavy rare earths are becoming more important in manufacturing technology because they have magnetic qualities that allow them to be used in electric cars, wind turbines, and hard drive components.

There is investment in separation in Australia, the United States, and Britain, but that separation is for light rare earths. Even if investment in the sector continues outside of China, for the foreseeable future, heavy rare earth separation would need to be done in China.

Heavy rare earths are more important than the light ones because they are used in many of the technologies that we depend on today. This is especially true for countries like Japan and South Korea that rely on manufacturing technology, and who could become less dependent on China if investment into heavy rare earth separation continued outside of China.

Some of the rare earths critical for magnets used in electric vehicles and wind turbines are dysprosium and terbium, and pricing for these has been up approximately 50% in 2021. Two factors have contributed to the price jump, as demand drives higher, and power disruptions for Chinese industry have forced production lower.

If the newly merged company can create a sufficient moat around pricing, then China could continue to dominate the rare earths separation industry globally. Now, industry watchers will be waiting to see what the combined production and coordination will mean for the rare earths industry.

The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a licensed professional for investment advice. The author is not an insider or shareholder of any of the companies mentioned above.

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Author: Matthew Evanoff