Research On Export Price Setting Of China’s Rare Earth

Rare earth is an important strategic resource in21century with multiple applications. It is a key element of innovative and high technology and significant material for defense and military industry and known as "industrial vitamin" and magical "new material treasury". Rare earth is to China as oil is to Middle East and iron ore is to Australia. World’s rare earth resources are mainly in China, Australia, Russia, America, Brazil, Canada and India. According to the document published by United States Geological Survey, by the end of2009, the total global rare earth resource is99million tons in REO content. China had36million tons, Russia had19million tons, United States had13million tons, Australia had5.4million tons and India had3.1million tons. Obviously, China’s rare earth reserves ranks first in the world. In the aspect of supply, our rare earth production which accounted for97percent of world’s total output was always higher than100thousand tons from2005to2011. Therefore, China is the largest exporting country in rare earth. In the aspect of demand, countries which highly depend on China’s export of rare earth are Japan, United States, European Union and Korea. Japan and Korea which focus on manufacturing and electronic industry are lack of resources due to their small geographical area, so almost70percent of China’s rare earth products were exported to these two countries. As to the United States which is in the second place of rare earth reserves closed its largest rare earth separation plant at Mountain Pass in2002and turned to import large quantity of rare earth from China every year. European countries are also important importers of China’s rare earth since they only have a small amount of rare earth reserves. In the aspect of export, the export volume has trended lower and fell from49thousand tons to43thousand tons from2000to2002, but it perked up slightly from2003to2006which maintained about55thousand tons. Since2007, the export volume has declined markedly due to that Chinese government tightened its policy on rare earth export. Particularly, the export volume in2011was only19thousand tons.However, although China’s rare earth ranks first in reserves, production and export, China’s rare earth was sold cheaply before2010. From1986to2006, average export price of China’ rare earth was almost only round10US$/Kg and it even dropped down to less than6US$/Kg which was the historical nadir. Since2007, our country began to implement a series of restriction policy on rare earth products export such as export tariffs collection, export quota, etc. Consequently, rare earth export price rose to a higher place than previous years, close to17US$/Kg. But due to the impact of financial crisis, rare earth export price began to decline. In2009, rare earth price dropped to8.59US$/Kg. In order to change the situation that China lacks rare earth export price setting, our country began to implement export quota restriction on rare earth products since1998. Policy system for rare earth price regulation has been formed over the years. Rare earth regulation gave priority to production and export restriction and then to industry consolidation and other policies before2009. Rare earth prices began to rise for the first time in2006, but because of the impact of financial crisis on demand, rare earth price fell again in2008. After financial crisis, our state strengthened regulation policies. The combination of total production restriction, reserve system, up-regulated resource tax and environment protection regulations achieved remarkable effect and caused continuous rise of rare earth price. Prices of rare earth oxides and metals rose rapidly from2010. Particularly in2011, the prices of rare earth resources fluctuated greatly. As of June17,2011, among the light rare earth products, metal neodymium enjoyed the highest price which grew418%to RMB1.7785million/ton. In the second half year, the roaring price of rare earth was unbearable for downstream enterprises, so the demand weakened. Since July2011, the price began to fall and enterprises started dumping products, leading to the further drop in price. In particular, the price of europium oxide plummeted to RMB12,750/kg in January2012from RMB29,975/kg in mid-July2011, down79.8%.But rise of rare earth prices has two outstanding features. Firstly, government regulation is the main reason for rise of rare earth price, whereas the market is lack of price formation mechanism. Secondly, government mainly restrains supply, while the effect of other policies is not obvious."Sliver price" rare earth falls into comparative advantage trap. Rare earth enterprises still solely rely on comparative advantage to produce and export natural resources, primary products and labor-intensive products. It means that rising rare earth price and interests earned from international trade were not due to that China improved its technology to produce and export manufactured goods or exported capital-intensive products. What’s more, even though the price increased, China is still lack of price setting on rare earth but on the verge of bubble burst instead. As three mine enterprises are to international iron ore market, obtaining of discourse power and price setting should be reflected on major industries. But only Baotou Steel Rare Earth preferably integrates domestic resources at present, most of other large state-owned companies and local enterprises which have just entered this industry have little technical experience and stay in their infancy in technical research capacity. In addition, discourse power of upstream resource is only one aspect, making downstream high technical content and high value-added industry become bigger and stronger on the basis of sustainable resources protection is the real control of international price setting. What’s more, recently, the collision on issue of Diaoyu Island between China and Japan became focus of the world and probably evolves into a bigger international event. In2010, after Diaoyu Island collision incident happened, China stopped to export rare earth to Japan in about two months, and that caused international concern about China’s restriction on rare earth export and led to Japan combined with America and European Union to take trade litigation against China. If China cuts off supply of rare earth to Japan again because of Diaoyu Island event, Japan certainly will continue to ally with America and European Union to pressure China.In a word, although China has absolute resource superiority in rare earth, China hasn’t grasp rare earth export price setting for a long time. In recent years, a series of rare earth regulation policies implemented by Chinese government had important impacts on acquiring export price setting of rare earth, but also caused new problems. Whether China can really command export price setting of rare earth in the future still confronts with numerous challenges. Consequently, researching issue of export price setting on China’s rare earth has important practical and strategic significances.This thesis divides into seven parts. The first part introduces background and meaning for research of rare earth export price setting and summarizes research of rare earth price setting by domestic and overseas scholars. The second part briefly states four theories involved in this research:Factor Endowment Theory, Comparative Advantage and Comparative Advantage Trap, Game Theory and Scarcity and Sustainable Development Theory. The third part explains meaning of international price setting, illustrates the five features of international price setting issue including extensiveness, specificity, discrepancy, variability and strategy and analyzes industry factor, enterprise factor, government factor and other factors which influence price setting. The fourth part introduces rare earth reserves and distribution status in China and World, analyzes world rare earth supply and demand situation and conducts quantitative study on China’s rare earth export volume, export quota and main rare earth trade countries in the aspect of China’s rare earth export status to international market. The fifth part analyzes export price trend of China’s rare earth at first and points out China’s rare earth was sold cheaply before2010, while its price rose obviously since2010and price setting improved to some extent. Secondly, it analyzes causes for lack of rare earth export price setting from six angles as market, technology, policy, supply-demand, enterprise and management. Thirdly, it researches a series of rare earth policies focusing on output and export restriction, discusses impact of export quota policy on domestic and overseas rare earth industry. At last, it evaluates current situation of China’s rare earth price setting objectively, analyzes features of rising rare earth price and points out rare earth export falls into comparative advantage trap and China still does not really grasp rare earth price setting. The sixth part first illustrates objectives for obtaining rare earth price setting. Secondly, it explains four challenges including change of rare earth supply pattern, overseas rare earth reserves, rare earth alternative and recovery technology and upside down profit in domestic industry chain. Lastly, it puts forward strategic choices for really mastering rare earth price setting. On the one hand, leading sustainable and healthy development of rare earth industry in enterprise, industry and nation aspects; on the other hand, increasing input for development and research on rare earth application technologies and strengthening rare earth industry technology innovation in order to guide rare earth industry technology reform. The last part of this thesis is conclusion.