The formation of a "rare earth group" is the antidote.
Wen 丨 Hua Shang Tao Luo Chen Mengdi
Why should the rare earth industry be centrally reorganized?
【Restructuring to build an aircraft carrier?】 】
Just after the eleventh holiday, Minmetals Rare Earth has received several groups of research teams from securities companies and funds, tired of responding to the questions of researchers.
Since the news of the restructuring came out, this listed company with an office address in Ganzhou City, Jiangxi Province, has immediately become the focus of the capital market, and every action and every statement has been amplified by the media and investment research institutions, repeatedly interpreting and speculating.
When it comes to restructuring, Minmetals Rare Earth's answer is particularly cautious: "It needs to be approved by the relevant competent authorities." ”
Surprisingly, the White House fried the pan first.
In response to the restructuring announcement issued by Minmetals Rare Earth on September 23, the US Department of Commerce announced the next day that it launched a "232" investigation into NdFeB permanent magnets to urgently discuss whether it is necessary to increase tariffs on imports of China-related products.
Because this restructuring will affect, in addition to investors' money bags, but also the development pattern and order of China's rare earth industry, and will eventually affect the global high-end manufacturing industry.
Due to the extreme complexity of the resource allocation and stakeholders involved, this restructuring is destined not to be completed easily, but the trend reflected in it is already very clear: China will further increase the integration and upgrading of the rare earth industry, and will also exert more efforts from the supply side to reshape the value and discourse system of the global rare earth industry.
It is necessary to improve the value and discourse power of the rare earth industry, which is also a highly consistent consensus in China from the government to the people.
【Rare Earth Past】
In 1992, deng Xiaoping said during his southern tour that there was oil in the Middle East and rare earths in China.
Rare earths, minerals containing 17 rare metals, are called industrial gold because of their non-renewable, high mining costs and wide applications.
Taking new energy vehicles as an example, the body, lights and spark plugs of a car must be added to rare earths. High-tech manufacturing industries such as mobile phones, computers, fighter jets, electric vehicles, and wind turbines are also inseparable from rare earths.
It can be said that rare earth applications are almost ubiquitous and closely related to the lives of every modern person.
According to the United States Geological Survey (USGS), in 2020, the world's rare earth reserves will be 120 million tons, and China's reserves will be 44 million tons, accounting for 36.7%. That year, China's rare earth production was 140,000 tons of REO (rare earth oxide), accounting for 58% of the world's total rare earth production. Especially for military rare earths, the United States is highly dependent on China.
According to the research of Zhongtai Securities, in the next 3 years, it is difficult to have a new supply of overseas rare earths. Myanmar's rare earth mines, which account for 12.5% of global production, have been interrupted due to the epidemic and political factors; the Australian mine is committed to solving the problem of ore radioactivity and the expansion plan of the separation plant in the United States; the US mineral energy has climbed to the full production stage, and the current strategic focus is on the construction of its own separation plant (planned to be completed in 2023). That is to say, the world's rare earth increment looks at China.
In 2016, China integrated the rare earth industry pattern for the first time and carved out six rare earth groups. Rare earth mines are limited to the six rare earth groups engaged in exploration and mining work, namely Chinalco Rare Earth, Minmetals Rare Earth, North China Rare Earth, Xiamen Tungsten, Southern Rare Earth and Guangdong Rare Earth.
Five years later, the news of a second round of industry restructuring came out.
This round of restructuring involves Chinalco, Minmetals Group and Nanfang Rare Earth Group, a subsidiary of Ganzhou Municipal Government. According to the total amount control indicators of the first batch of rare earth mining, smelting and separation in China in 2020 and 2021, the above three parties account for nearly 67.9% of the domestic medium and heavy rare earth mining indicators, 39.1% of the light rare earth mining indicators, and 42% of the smelting and separation indicators, and the business scope is concentrated in the south.
If the restructuring is successful, Minmetals Rare Earth and Northern Rare Earth may form a "one south and one north" pattern, which together account for more than 90% of the total indicators, and the concentration of China's rare earth industry will be further enhanced.
Why is the rare earth industry restructuring again and again?
Historical data show that the initial stage of China's rare earth industry began in the 1950s, at different stages, the country's perception of rare earths is different, and industrial policies will be adjusted accordingly.
From the early countries to encourage the export tax rebate policy of mining rare earths, to the export quota system, to the export license management system, the six major rare earth groups divided the cake, and now the news of restructuring of Minmetals Rare Earth has been released...
Behind each change is directly related to national strategies, rare earth-related technological developments and global manufacturing, and has also changed the fate of countless individuals.
In the early days, China did not have rare earth separation technology, in order to exchange foreign exchange, it could only dig rare earth ore as iron ore, sell rare earth as soil, and export rare earth as an ordinary resource for a long time.
From 1985 to 1998, the export tax rebate policy was implemented for 13 years, which is considered to be an important reason for the large-scale development of rare earths in China. From Google Maps, the world's largest rare earth mine, the Baiyun Obo Mine in Baotou, Inner Mongolia, has been dug into two large pits from two mountains.
In addition to the northern rare earths represented by Baiyun Obo, the southern rare earths represented by Ganzhou in Jiangxi are also dry and fast. However, large-scale development not only does not strengthen and expand the rare earth industry, but on the contrary, it makes China's rare earth market more and more scattered, extensive, and more and more "cheap" in the international market.
【Crazy Rare Earth】
Since 1998, China has realized the value of rare earths, gradually abolished the export tax rebate system, replaced it with a rare earth export quota system, restricted the export volume of rare earths, and raised the price of rare earths.
But the loophole in this policy is that there is no restriction on domestic rare earth production. This is equivalent to leaving loopholes for those who steal rare earths and smuggle rare earths to drill. Moreover, although China had the technology to separate rare earths at that time, the inventor did not apply for patent protection, which solved the technical threshold for the pirates of rare earths in disguise.
Just 10 years ago, the illegal mining of rare earths was still rampant, and the rare earths that people in the industry called "black rare earths" and "black gold".
In 2012, the Ministry of Land and Resources released a list of rare earth mining rights, 67 mines, of which 44 were in Ganzhou.
Ten years ago, the price of rare earths was 20,000-30,000 yuan / ton when it was low, and 400,000 yuan / ton when the price was highest. Due to the lack of supervision, 20,000 to 30,000 tons are stolen every year, and hundreds of rare earth billionaires are born in a city in Ganzhou every year.
The huge profits of rare earths, like heroin injected into blood vessels, make people who are stained into madness.
Officials, businessmen and people have gone out one after another, knowing the law and breaking the law, committing crimes against the wind, smuggling and stealing rare earths to form a black industrial chain.
The amount of rare earths imported from China abroad is much higher than the amount of exports officially announced by China. In 2011, the number of rare earth import statistics released by foreign customs was 1.2 times higher than the number of exported rare earths by China's customs.
In Ganzhou, people who have been in prison and officials who can fish people out of prison have joined forces to steal rare earths. Later, pirate mining became a common practice, an ordinary farmer in Ganzhou is a mining master, found that there are rare earths in the ground, they contracted in the name of planting fruit trees, bought their own machines, and started digging out in the early morning to midnight and selling them.
Rare earth mines are usually located in barren mountains and wild mountains, and if outsiders break in, they will be beaten and driven away, and if they are heavy, their lives will be in danger.
Rare earths are national, but buried in the ground of ordinary people is difficult to regulate. Even the law enforcement team patrolling the mountains and found that large-scale illegal mining did not dare to act rashly, but secretly lurked and observed, and after the evidence was conclusive, reported it to the superiors, called the public security law enforcement team to go out at night, and stole and seized it in one fell swoop.
In order to protect the rare earth mine, the government even sent special soldiers with flying cornices to the wall, and some law enforcement officers were retaliated against for cutting off people's financial roads. Due to the crimes, corruption and black smuggling cases bred by the illegal mining of rare earths, the broken families behind them are difficult to count, and they have caused irreversible ecological damage.
According to official statistics, in 2011, the cost of environmental restoration treatment caused by rare earth mining in Ganzhou was 38 billion yuan, but the profit of rare earth enterprises in Jiangxi Province was only 6.4 billion yuan.
In a village in Jiangxi province after rare earths have been mined, there is no grass, groundwater is undrinkable, and residents have to leave their homes and families behind, leaving only abandoned houses, ravines of yellow soil and green sewage pits.
Being excavated from the first rare earth is like opening Pandora's box, and there is an endless battle between rare earths.
Individuals and enterprises, local and central governments, private capital and state-owned capital, other countries and China, rare earth lawsuits from the domestic to the international court, conflicts and hatred are linked into layers.
Before 2004, about 70% of China's rare earth products were exported, and other countries were highly dependent on Chinese imports due to strict environmental protection policies or no rare earth resources.
After 2004, with the rapid development of local manufacturing, China's self-use of rare earths exceeded the export volume, but the dependence of the international market on China's rare earth raw materials has not changed, and the "WTO Rare Earth Case" in 2012 was brewed.
In March 2012, the United States, Japan and the European Union jointly sued China at the World Trade Organization (WTO) because China's export quotas and tariffs on rare earth, tungsten and molybdenum raw materials did not comply with relevant WTO rules and China's WTO accession commitments, resulting in China's defeat.
On the last day of 2014, China abolished rare earth export quotas and export tariffs, introduced an "export license" management system, and enterprises applied for export licenses with export contracts, returning to the era of unlimited qualifications and unlimited export quantities.
【Breaking the game】
With the resource advantages of China's rare earth mineral deposits, it is reasonable to obtain monopoly profits and pricing power in the world rare earth market, but it has been in a state of export poverty for a long time.
On the one hand, due to the long-standing price war of Chinese rare earth enterprises, coupled with the smuggling and illegal mining of the black industrial chain, foreign enterprises have been given sufficient bargaining space. Due to the high quality and low price, and no need to bear environmental protection risks, foreign enterprises import a large number of Chinese rare earths to "hoard goods";
On the other hand, mining technology is the lowest, the fastest to make money, most of China's enterprises rely on mining rare earth mines to make quick money, rather than making rare earths into high-tech products to sell money. On the contrary, foreign rare earth minerals are imported from China at low prices, and then made into high-tech products and sold back to China, resulting in China's rare earths being in a huge trade deficit for a long time.
How to solve the rare earth dilemma?
China cannot and has no obligation to always be a "rare earth supplier" to the world, and China's rare earths must not only ensure the safety of the supply chain, but also ensure the sustainable development of the ecological environment. Under these two premises, China's rare earths have to sell the price of rare earths.
Zhang Anwen, deputy secretary-general of the China Rare Earth Society, pointed out that it is imperative to vigorously develop key technologies and manufacturing downstream of the rare earth industry.
Zeng Qiao, a partner at Hejun Consulting, believes that the restructured central enterprises will further represent China in global industrial competition. Through restructuring, local finances can also combine strategic assets with central enterprises, enhance industrial competitiveness or complete capital recovery, and optimize the competitiveness of local economies.
The formation of a "rare earth group" is the antidote.
After the news of the first restructuring, many local private rare earth bosses could not sleep at night, and not being able to get on the car meant being out.
It's a pity that the times have abandoned people who never say hello. Improving the concentration of the rare earth industry is the trend of the times, and only by controlling rare earths from the source can we standardize the price mechanism of rare earth resources and enhance the competitiveness of the entire industrial chain.
In 2016, with the support of the government, the domestic rare earth industry completed the first integration, forming six state-owned rare earth groups, integrating all rare earth mining rights and smelting separation enterprises in the country, and every year the state will issue raw ore mining indicators and separation smelting indicators to the six major groups.
Consolidation is not over.
In January 2021, China's Ministry of Industry and Information Technology issued the Regulations on the Administration of Rare Earths (Draft for Solicitation of Comments) to prepare legislation to protect rare earth resources. In March 2021, the Ministry of Industry and Information Technology said that "China's rare earths did not sell the price of rare earth, but sold the price of 'soil'", which was regarded as a signal of drastic changes in the industry.
Before the news of the restructuring of Minmetals, the industry rumored that the relevant departments were preparing to establish two rare earth groups in the north and south to further improve the utilization rate of rare earths, and the companies that joined would obtain the corresponding shares in proportion to the asset value.
Today, in the context of carbon neutrality, the value of rare earths is further magnified.
The IEA's "The Role of Key Minerals in the Clean Energy Transition" report notes that the supply of key minerals necessary for key clean energy technologies such as electric vehicles will need to increase significantly in the coming decades, with a typical electric vehicle requiring six times the mineral input of a conventional car.
Under the national policy of "double carbon", the demand for rare earths has been greatly released.
According to the statistics of Zhongtai Securities, the global sales of new energy vehicles have reached 5 million to 6 million in 2021, which is about 10 times that of 2015, and the proportion of new energy vehicles in rare earth demand is expected to increase from 10% to more than 20% in the next 3 years.
In addition, more than 40% of wind turbines use NdFeB permanent magnets made of rare earths, which can save more electricity.
Industry insiders believe that mergers and acquisitions are changes in market participants, and the fundamentals of supply and demand determine the rise and fall of the industry. Rare earths have previously been criticized by investors as "can't understand", just empty speculation concept. Nowadays, rare earths are linked to new energy vehicles and carbon neutrality, which not only has a real performance release, but also can get rid of the problem of overcapacity before.
Therefore, Minmetals Rare Earth is very confident in its profitability, and its latest announcement said that the company's operating income target for 2021 is 2.7 billion yuan, an increase of about 63% compared with the operating income of 1.66 billion yuan in 2020.
Previously, when the six major groups were reorganized, many small enterprises were directly shut down, and large enterprises lost money and cleared twice.
The restructuring is for three major groups, involving the distribution of benefits, the receipt of employees and liabilities, and the pace of integration is still in a state of stalemate.
At present, Minmetals has not disclosed further information about the restructuring. However, industry insiders said that regardless of whether the restructuring is smooth or not, with the promotion of the development of emerging industries and the integration of industries at the national level, the era of China's rare earth cabbage prices is gone.
【References】
[1] "Game Rare Earth", Caixin Weekly, Li Liuxi, Luo Guoping
[2] The Role of Key Minerals in the Clean Energy Transition, International Energy Agency
[3] Minmetals Rare Earth 2020 Annual Report
[4] "After the Rare Earth Consolidation in Ganzhou", China Economic Weekly, Guo Fang, Dong Xianping
[5] "Ten Questions on Rare Earths: Once Again Witnessing the Era of "China Has Rare Earths"" Zhongtai Securities
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