In the wake of China's loss in the rare earth WTO dispute, the export tariffs on certain rare earth products are expected to be abolished. This development is likely to prompt a renewed effort by the Chinese government to regulate and consolidate the rare earth industry. According to recent reports, several key ministries, including the State Administration of Taxation, the Ministry of Industry and Information Technology, and the Ministry of Finance, are currently discussing an increase in the resource tax on rare earths. It is anticipated that these changes could be introduced in the second half of the year.
Industry insiders suggest that the proposed tax increase may significantly raise the cost for companies involved in rare earth production and processing. This move is seen as a strategic tool to control the market, reflect the true value of rare earth resources, and account for environmental costs associated with their extraction. By increasing prices, the government aims to reduce smuggling activities and curb excessive hoarding by domestic buyers, ultimately helping to mitigate the impact of the WTO ruling on China’s rare earth management.
China has long sought to transition from its previous model of large-scale, low-value rare earth exports. Since 2007, the country has implemented planned production quotas and gradually reduced export limits. In 2011, it raised export tariffs on specific rare earth products and introduced a resource tax for the first time. The tax rate was increased by more than tenfold, with light rare earth minerals like cesium ore and monazite taxed at RMB 60 per ton, while medium and heavy rare earths such as yttrium ore and ionic rare earths were taxed at RMB 30 per ton.
A veteran in the rare earth industry noted that a sharp rise in the resource tax would further increase operational costs for companies. At the same time, the surge in tax revenue signals the government's determination to maintain stricter control over the sector. As a result, rare earth prices could see an upward trend.
According to recent data, rare earth prices had reached a low point in mid-2013 after a decline in the fourth quarter of 2013. In Baotou, a major rare earth production hub, 34 large-scale enterprises reported an operating rate of 91.2% between January and March, with sales revenue dropping by 25.3% year-on-year. Profitability also declined, with profits falling by 4.7%. Export figures showed a significant drop, with delivery values down by 47.2% compared to the previous year.
Companies with mining rights, such as Baotou Steel Rare Earth, Xiamen Tungsten Industry, Minmetals Rare Earth, Guangyu Nonferrous Metals, Chinalco, and Quzhou Rare Earth, are expected to benefit from these policy shifts.
It is also worth noting that global economic conditions and declining demand in China have led to a sharp drop in rare earth prices. This has reduced pressure on the development of new mines abroad. Although the U.S. Molybdenum Company reopened an old mine in California, and Malaysia has been sourcing rare earths from Australia, enthusiasm for new international projects has waned. Recent geological surveys have identified hundreds of new deposits worldwide, but investment in new mining operations remains limited.
Experts believe that the scarcity of rare earths will soon be addressed through taxation. The European Economic Research Center predicts that China will maintain its dominance in the heavy rare earth market until 2020. Currently, around 90% of the world's rare earth supply comes from China. Analysts suggest that as trade barriers are removed, demand for rare earths may rebound overseas, making internal regulation even more critical for preserving these valuable resources.
China’s rare earth reserves are estimated at 27 million tons, down from 70% of the global total to just 30% today. At the current rate of extraction, China's reserves are expected to last only 15 to 20 years, potentially forcing the country to rely on imports in the future.
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