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Economy

China's supply-side reforms bring silver lining to rare metals

Beijing is tightening its grip on rare metals.

TOKYO -- After a long downtrend, prices of some rare metals have been recovering since the beginning of the year.

Driving the change is China, the leading supplier, where government-led moves are underway to consolidate producers, slash output and build up reserves.

To address excessive production, Beijing has recently been promoting supply-side reforms. And while those efforts have struggled to make progress in the steel, coal and aluminum industries, they are gradually bearing fruit in the rare metals industry.

One metal the government is focusing on is antimony, which is used as a fire retardant. Last year, Beijing attempted to consolidate the country's major eight antimony smelters into a single entity. However, the plan proved too complicated due to the large number of companies involved. An official at Nihon Seiko, a major Japanese supplier of antimony products, said negotiations are still underway to merge the smelters into four entities. Beijing is looking to cut output by half and thus shore up prices of the metal.

In addition to clamping down on operations to smuggle antimony out of the country via Vietnam, Beijing has also forced some producers in Henan Province and elsewhere to suspend operations on the grounds of environmental negligence.

These efforts appear to be working. In late April, the spot price of antimony in London topped $6,000 per ton for the first time since last October. Recently, it has reached the $6,400 to $6,700 range.

Building up reserves

In April, China increased its reserves of tungsten, a rare metal used in carbide cutting tools, by 10,000 tons, or roughly 10% of the country's annual output. Prices of ammonium paratungstate, an intermediate material used as a stand-in for tungsten in pricing, had been holding below $200 per 10kg since last autumn, but they have since risen to around $210.

In March, China's eight major mining companies said that they were cutting production for the current year by 15% on the year. A trading house official said the companies have since agreed to raise the target to 20%.

Thanks to government-led stockpiling efforts, prices of rare-earth metals used in the manufacture of high-tech products have been climbing of late. The international spot price of neodymium, used in high-performance magnets, stands at about $56 per kilogram, while that of dysprosium is about $265 per kilogram. Both are up by 3% to 10% since May.

When Beijing announced plans to build up its annual rare-earth reserves to roughly 20,000 tons in 2016, an official at a major trading house expressed surprise, saying, "That amount is bigger than ever." At one point, China was home to more than 100 rare earths producers. Today, efforts to consolidate that number into just six are almost complete, and the country's supply of rare earths has been tightened.

As for why supply-side reforms are working with rare metals but not for other commodities, Yoshikazu Watanabe, president of Japanese consultancy Tsukushi Shigen Consul, pointed to the industry's smaller size compared with, say, steel, which he said makes it easier for the government to take control. According to Watanabe, consolidation efforts, cooperative production cuts and increased reserves are supporting prices.

Demand trends are another actor. Demand for rare-earth metals is generally strong across the globe for use in high-performance motors for electric vehicles. For antimony, however, demand from Japan and Western economies for use in home appliances and for housing-related purposes is largely weak. Demand for the metal is also falling in China and other countries as electric bicycles switch from lead batteries to lead calcium batteries. Likewise, tungsten demand for carbide tools is declining due to stagnating mine development.

In the rare metals market, supply-side factors are sending prices higher. Whether the upward momentum continues, however, will likely depend on changes in demand.

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