Fact vs Fiction: The Chinese Rare Earth Stockpile Rumor

Well, it’s apparently caused quite a stir throughout the rare earth element (REE) sector. I’m talking about a report on an industry webpage and filed from Beijing that quotes “market sources” along the lines that the Chinese government intends “in the near future” to reserve four rare earth oxides for its national stockpile. The four are named as dysprosium, europium, terbium and yttrium.

Fact check #1: This report appears, so far as I can see, on no Chinese media site such as China Daily. A search of Google News does not come up with anything. Nor is there anything in the Japanese press – and they normally leap at anything about REE, especially if it relates to problems with supply.

Fact check #2: We’ll leave aside the imprecision of “in the near future” and think about the reserving of these elements for the national stockpile. Yes, China has stockpiles of many commodities but does this mean that they’re going to cease all exports of these four REE? Or will they wait until the present export quotas expire? Or can stockpiling and exporting co-exist?

Fact check #3: What will the World Trade Organization say about any plan to cease all exports? Nothing good – which suggests that China may be going to stockpile some of the HREE output but intends to still meet export quotas. Again, we can’t tell.

The report continues: “Market sources said that three rare earth giants, Chalco, China Minmetal and Baotou Steel Rare Earth, will take part in the national stockpile and the government will grant these companies an interest-free loan.” That still does not illuminate to what extent supplies of these four elements will be crimped for overseas buyers. And we know that Beijing’s plan is to have three large REE operations.

The report cites its sources as saying the main purpose of the REE reserve is to stabilise prices. Well, in that case, the stockpiling (for which read: withholding supplies from the market) is intended to reverse recent declines in REE prices and therefore may only be temporary. If China withholds entirely from exporting these four elements, it won’t do much for prices; Chinese buyers already pay far less than foreign customers. Presumably Beijing is not going to withhold supplies to Chinese end-users – that would be counter-productive in adding to the costs of high-tech manufacturers, which is something China would not want to do.

The remaining part of the of the report contains some conjecture but no hard facts.

So, to sum up, we don’t know how much of REE is going to the stockpiles, whether exports will cease, how China is going to get prices up without foreign customers and whether it will exempt Chinese end-users from any price increases.

Which means we don’t know a whole lot – or whether this is just a decoy to frighten foreign customers. We shall have to wait to see whether there’s anything more substantive coming.