Rare earth management has been formally legislated! China's mineral protection a

With the promulgation of the latest "Rare Earth Management Regulations," China is not only perfecting the traceability system for rare earth exports but also beginning to regain the pricing power of rare earths!

01

China Perfects the Traceability System for Rare Earth Exports

On June 29, the State Council officially released the "Rare Earth Management Regulations" (hereinafter referred to as the "Regulations"), which will come into effect on October 1, 2024. The "Regulations" adhere to the principle of protecting resources and developing and utilizing them in parallel, following the principles of overall planning, ensuring security, scientific and technological innovation, and green development. It improves the supervision system for the entire rare earth industry chain and clarifies supervisory measures and legal responsibilities.

The newly announced regulations explicitly state that rare earth resources belong to the state, and no organization or individual is allowed to encroach upon or damage rare earth deposits. The new rules also stipulate strict penalty measures. Companies involved in illegal mining, smelting, extraction, product distribution, and illegal import and export of rare earths will be fined 5 to 10 times their illegal income. If no income has been obtained, they will face a fine of 500,000 to 2 million yuan.

Advertisement

The most noteworthy aspect is that China is establishing a mandatory traceability system for rare earth products. If a company fails to submit its rare earth business operation information to the national product traceability system, it will be fined 50,000 to 200,000 yuan. If it still refuses to submit data after being prompted, it will be shut down and fined 200,000 to 1 million yuan.

The "Regulations" clearly propose that the state will improve the rare earth reserve system by combining physical reserves with mineral reserves. The physical reserves of rare earths will be a combination of government and enterprise reserves, continuously optimizing the structure and quantity of reserve varieties.

Compared to previous regulations against illegal mining and smuggling of rare earths, the details of this "Regulations" show that China's goal is not to control the export of products by rare earth companies, but to ensure that all companies' exported rare earth products will not be used by U.S. arms giants that are under Chinese sanctions.Strategic Resources Sold at "Cabbage Prices"

Rare earth elements are hailed as the "vitamins of industry," possessing irreplaceable excellent magnetic, optical, and electrical properties, playing a crucial role in improving product performance, increasing product variety, and enhancing production efficiency.

In the field of aerospace, including cutting-edge applications such as precision-guided weapons, night vision devices, and radar systems. These materials are widely adopted due to their superior magnetic and optical properties. Additionally, rare earth elements have significant applications in electronic information, communication equipment, and computer hardware. For instance, they are used to manufacture high-performance magnetic materials (such as permanent magnets), which are essential in motors, speakers, and hard disk drives.

Furthermore, rare earth elements are the core components of many new functional materials, including luminescent materials, hydrogen storage materials, polishing materials, and catalytic materials. These materials find applications in liquid crystal displays, LED lighting, high-performance alloys, and catalysts.

The extremely broad range of uses and the non-renewable nature of rare earths make them an important strategic resource in the eyes of countries around the world. However, the distribution of rare earths globally is uneven. The distribution of global rare earth resources is significantly concentrated, mainly in a few countries or regions. According to data from the United States Geological Survey (USGS), as of 2022, the total proven reserves of global rare earth resources are approximately 130 million tons.

Global rare earth resources are highly concentrated in four major countries or regions: China, Vietnam, Brazil, and Russia. The combined rare earth reserves of these four countries account for the majority of the world's total reserves. This highly concentrated distribution pattern places these countries or regions in an important position in the global rare earth supply chain and significantly impacts the balance of supply and demand in the global rare earth market.

Among them, China is one of the world's largest rare earth resource countries, with its rare earth reserves accounting for about 33.8% to 34% of the global total, specifically 44 million tons. In addition to having high reserves, China is also the world's largest exporter of rare earths. According to the USGS report, since 2011, the rare earths produced by China have been sufficient to meet 97% of the global demand.In the global economic landscape, rare earth elements are akin to a hidden trump card. For many years, despite China's rare earths being utilized by the global market at low prices, there is a deeper story behind this. For a long time, the international community has been extraordinarily dependent on China's rare earths, yet the respect and returns given to China have been far from sufficient. Data from 2019 shows that although the domestic export price of rare earths was only $46 per ton, the price imported from other countries was as high as $84, a price inversion that not only reveals the unfairness of the market but also reflects the severely undervalued status of China's rare earths.

The valuable rare earth resources in China are being sold at astonishingly low prices. According to statistics, since the 1990s, the export volume of China's rare earths has increased by about tenfold, while the average price has been suppressed to about sixty percent of the original price. In the context of the geometric growth of the world's high-tech industries such as electronics, lasers, and superconductivity, the price of China's rare earths has not risen accordingly. Astonishingly, the price at which the United States purchases rare earths from China is lower than the cost of mining them domestically.

With the world's leading export volume, 60% of China's production is used for export, accounting for more than 63% of international trade, and China is the only country in the world that supplies a wide range of grades and varieties of rare earth products in large quantities. While China celebrates its GDP becoming the second-largest in the world, it is unaware that the valuable wealth beneath its feet has already been squandered and is gone forever.

Relative to that GDP figure, the true wealth that has been lost has contributed to the luxurious and affluent lifestyle of Westerners.

03

Breaking Free from the "Rare Earth Alliance" Shackles

In the 1960s and 1970s, China's rare earth resources were always in a situation of being "undervalued." Such precious resources did not bring wealth to China. The main reason was the lack of scientific and technological capabilities, as foreign countries had been monopolizing the level of rare earth refining technology. We did not have the technology to refine rare earths that could be directly applied, and the rich resource advantages did not translate into wealth. As a result, our country has always been in the position of supplying raw materials, having to sell a large number of rare earth resources at low prices for a long time.

Western countries, represented by the United States, monopolized the rare earth trade, and the only way to obtain rare earth products was through imports from foreign countries. Raw materials sold at low prices were processed and then purchased back at high prices. The formation of such a production chain has kept China at a disadvantage.

This situation changed with the emergence of a person named "Xu Guangxian."At that time, Xu Guangxian had made significant achievements in the United States, living a happy and fulfilling life with generous benefits. However, upon learning that the country's development faced technical challenges, he and his wife resolutely embarked on the journey back to their homeland.

Academician Xu Guangxian's contributions to the extraction and purification of rare earths are enormous. Based on his profound understanding of the basic laws of rare earth chemical bonds, coordination chemistry, and material structure, he discovered the fundamental law of "constant mixed extraction ratio" in rare earth solvent extraction systems.

In the 1970s, he established the universally applicable theory of countercurrent extraction, which has been widely applied in China's rare earth separation industry. This theory completely changed the trial amplification model from research and development to application of rare earth separation processes, achieving a "one-step scale-up" from design parameters to industrial production. It has guided a comprehensive innovation in China's rare earth separation science and industry, enabling the country to leap from being a major rare earth resource nation to a major producer and exporter of rare earths.

Thanks to Xu Guangxian's research and efforts, China's rare earth separation processes have bid farewell to the cumbersome "funnel shaking" and have transitioned from a major rare earth resource country to a major producer and exporter of rare earths. His work has not only brought revolutionary changes to China's rare earth industry but also had a profound impact on the global rare earth market structure.

Since 2019, China has begun to gradually adjust its rare earth export policies, restricting exports to certain countries. By last December, China had taken a series of countermeasures against rare earths, focusing on refining, processing, and utilization technologies, significantly raising the barriers for foreign companies to enter the Chinese rare earth market. This change has attracted widespread attention from the international community, with many countries dependent on Chinese rare earths beginning to reassess their supply chain security.

However, in the face of the rise of China's rare earth industry, Western countries accustomed to long-term "taking advantage" are clearly unwilling to let go of the pricing power of rare earths.

In recent years, as China continues to strengthen the management of rare earth resources and restrict export quotas, many Western countries, including the United States and the European Union, have begun to face a "rare earth crisis." In an effort to break free from their dependence on Chinese rare earth market exports, these countries have started to form alliances, attempting to find new ways through collective action. To this end, the United States has recently taken the lead in establishing a "G7 Supply Chain Alliance."The "G7 Supply Chain Alliance" established by the United States aims to address the supply of rare earths, attempting to rely on the rare earth mines in the U.S. and Australia to meet the demand for rare earths in the European, American, and Japanese economies. According to Reuters, the European Union is also studying a resolution to support the European rare earth permanent magnet industry and fully participate in global competition. Previously, the United States, which has been searching for rare earth resources worldwide, has also enacted similar legislation. External commentary suggests that the U.S. and Europe are likely to form a "rare earth alliance" to jointly confront China.

However, facing China with a complete industrial chain, the so-called "rare earth alliance" is clearly not very reliable.

04

Gradually Strengthening Bargaining Power

The "G7 Supply Chain Alliance" seemingly connects the supply and demand ends, but the issue is that after years of accumulation and development, China has now become the only country in the world with a complete rare earth industrial chain. According to the USGS and the "Neodymium Magnets Supply Chain Report-Final," China's rare earth reserves account for more than 60%, the global capacity share in the separation and smelting segment is about 90%, and the manufacturing of magnet alloys accounts for more than 90%, forming an absolute resource advantage and industrial chain advantage on a global scale.

The promulgation of the "Regulations" clarifies the strategic resource status of rare earths, which is expected to strengthen the regulation of the rare earth industry order, further enhance the protection and efficient use of China's rare earth resources, and increase the added value of the rare earth industrial chain.

At the same time, China is the only country that can achieve extremely high purity rare earth smelting, with the purity after separation of neodymium and praseodymium reaching a world record of 99.99%, demonstrating China's advantage in rare earth smelting technology. Due to China's technological edge in rare earth smelting, most of the rare earths mined in Australia and the U.S. are sent to China for smelting. In 2019, 74% of the rare earth minerals produced in the U.S. were shipped to China for smelting, simply because U.S. rare earth smelting companies are unable to smelt these rare earths.

As early as May 2011, to enhance the concentration of the rare earth industry and strengthen China's bargaining power in the international market for rare earths, and to improve the degree of industrial concentration, the State Council proposed in the "Several Opinions on Promoting the Sustainable and Healthy Development of the Rare Earth Industry" to use 1 to 2 years to basically form a rare earth industry pattern dominated by large enterprises. The top three enterprise groups in the southern ion-type rare earth industry should achieve an industrial concentration of more than 80%, initiating the integration of the rare earth industry. The Ministry of Industry and Information Technology proposed to support large enterprises in using capital as a bond, and to vigorously promote resource integration through joint ventures, mergers, and reorganizations.

By the end of 2014, the establishment implementation plans of the six large rare earth enterprise groups led by the Northern Rare Earth Group, China Minmetals, China Aluminum Company, Ganzhou Rare Earth, Guangdong Rare Earth, and Xiamen Tungsten, respectively, were all approved, marking the official implementation stage of the merger and reorganization of rare earth enterprises. By the end of 2015, the "1+5" large rare earth group establishment work across the country was basically accepted, integrating a total of 66 rare earth mining licenses and 77 smelting and separation enterprises nationwide.While steadily advancing the integration of the industrial chain, in January 2021, the Ministry of Industry and Information Technology (MIIT) of China released the "Rare Earth Management Regulations (Draft for Comments)". This was the first time at the national level that legislation was introduced to standardize the high-quality development of the rare earth industry, strengthening management across the entire rare earth industry chain and further clarifying the management requirements for the total volume indicators of the strategic reserve system for rare earth products.

From 2021 to 2023, the controlled quantities for rare earth mining across the country were 168,000/210,000/240,000 tons, respectively, increasing by 28,000/42,000/30,000 tons year-on-year; among these, the controlled quantities for mining of rock-type rare earths (light) were 148,900/190,900/220,900 tons, while the controlled quantities for mining of ion-type rare earths (mainly medium and heavy) remained at 19,150 tons.

In the rare earth smelting and separation sector, China's large rare earth groups hold an absolute leading position globally, with only a few companies such as Australia's Lynas having the capacity for rare earth smelting and separation overseas. Similar to the mining and selection of rare earth ores, the production of China's rare earth smelting and separation must be based on the quotas allocated by the MIIT and the Ministry of Natural Resources, thereby obtaining the bargaining power for rare earths and their downstream products.

05

From Automobiles to Robots

Broad Application Prospects for Rare Earths

The reason why Europe and the United States are eager to control the global rare earth pricing power, apart from the essential needs of the military industry and the electronic information industry, is also due to the rise of the new energy vehicle sector in recent years, which has made the strategic position of rare earths increasingly solid.

Countries around the world are accelerating the electrification transformation of automobiles and promoting the widespread adoption of new energy vehicles. The European Union has driven the rapid increase in the penetration rate of new energy vehicles through stringent carbon emission regulations and subsidy policies, and has required that from 2035, the sale of new fuel vehicles will be stopped within the EU territory: The United States has implemented the $369 billion Inflation Reduction Act, which is used to focus on supporting the development of clean energy industries such as electric vehicles and photovoltaics, providing a $7,500 tax credit for new energy vehicles. China's "New Energy Vehicle Industry Development Plan (2021-2035)" proposes that by 2025, the proportion of new energy vehicle sales in China will account for more than 20% of the total sales.According to the China Association of Automobile Manufacturers, from January to November 2023, the national production of new energy vehicles reached 8.304 million units, a year-on-year increase of 36.87%. Based on CleanTechnica, from January to October 2023, global new energy vehicle sales amounted to 10.732 million units, a year-on-year increase of 38.47%. With the rapid growth in sales and the continuous improvement in market penetration of new energy vehicles, the demand for drive motors, represented by permanent magnet motors, which are one of the core components of new energy vehicles, will be stimulated, thereby driving the demand for rare earth permanent magnet materials to grow.

In addition to the new energy vehicle industry, the "humanoid robot + industrial robot" sector has also become an important application field for rare earth permanent magnets.

On February 26, 2024, Tesla shared a video on social media platforms of the humanoid robot Optimus walking around one of its testing facilities. The robot can now walk at a speed of 0.6 meters per second, which is a 30% increase in speed since the last video was released. Ultimately, Optimus is expected to be able to walk at a speed of 5 miles per hour. According to Tesla's 2022 AI Day, the robot is equipped with 12 motors each for the arms, hands, and legs, and 2 motors each for the neck and torso, totaling 40 motors.

Among them, one of the main components of both rotary actuators and linear actuators is frameless motors, while the dexterous hand is a hollow cup motor. Regardless of the type of motor, neodymium-iron-boron, as the third-generation permanent magnet with the best comprehensive performance, is currently a better choice for humanoid robots due to its high coercivity and high magnetic energy product.

Due to the limited data available on Tesla's humanoid robot, third-party institutions have estimated the neodymium-iron-boron consumption per Tesla humanoid robot to be approximately 3.0 kilograms, based on the robot-related product data from domestic hollow cup motor manufacturer Topband and global frameless torque motor leader Kollmorgen.

According to Musk's "10-year plan for a production capacity of 5 million units," assuming that when Tesla achieves an annual production of 5 million humanoid robots, the global humanoid robot production reaches 10 million units (considering Tesla's leading position, assuming a market share of 50%), the global humanoid robot production would be 10 million/6 million/1 million units, corresponding to neodymium-iron-boron demand expectations of 3.0/1.8/0.3 million tons, respectively.

In the field of industrial robots, based on the forecast by the International Federation of Robotics, the consumption of neodymium-iron-boron per industrial robot is 24-37 kilograms. Here, we take 25 kilograms per unit as the single consumption for industrial robots. It is expected that by 2026, the global industrial robot production will reach 990,000 units, with the corresponding demand for neodymium-iron-boron expected to reach 25,000 tons, thereby opening up new application spaces for rare earth permanent magnet materials.At the same time, wind power, air conditioning, and electric motors are important application fields for rare earth permanent magnets. It is estimated that the global demand for neodymium oxide will be 86,100/97,100/105,800 tons in 2023/2024/2025, respectively, with year-on-year increases of 12,000/11,000/9,000 tons; the global supply of neodymium oxide will be 92,800/96,300/103,100 tons, respectively, with year-on-year increases of 16,300/3,500/6,800 tons; the supply and demand gaps will be -6,600/-800/-2,700 tons, respectively. This means that China, with a complete industrial chain, has the potential to further gain a say in the global rare earth permanent magnet market.

Overall, despite facing competitive pressures from countries such as the United States, Japan, and the European Union, China has maintained its advantageous position in the rare earth industry chain. Through continuous technological innovation and industrial upgrading, it continues to consolidate its leading position in the global rare earth market.