Research On The Extension Effect Of Rare Earth Industry Chain From The Perspective Of Profit And Risk

Due to the unique physical and chemical properties,rare earths are widely used in the vast number of scientific and technological fields.Rare earths are one of the irreplaceable resources,and their economic and strategic values becoming more and more important.As a country with a large amount of rare earths,China is in an international leading position in the front-end of the industrial chain(mining production,separation and smelting)by its own natural resource advantages.However,the backward technology at the back-end of the industrial chain(functional materials,high-end applications)makes China have a low voice in international competition.According to the theory of global value chain,the closer to the back end of the industrial chain,the higher the value allocated.It means,the high added value of rare earth lies in the back end of the industrial chain.Therefore,China urgently needs to implement an effective industrial chain extension strategy,and then truly become a real “Rare earth powerhouse”.From the micro perspective,enterprises are the main body of implementation of industrial chain extension.The financial situation of enterprises can reflect the decision and implementation.Although the amount of mining and smelting separation of rare earth mineral products depends on the national production directive.Under the market economy system,the starting point of decision-making by enterprises as "rational people" must be to improve the level of profitability within the range of risk.For enterprises,no matter the implementation of industrial chain extension methods,they have to face great capital challenges and unknown risks.Only when the industrial chain extension strategy can bring higher profits and more comprehensive risks to the enterprise,the decision of the enterprise will be to actively extend the industrial chain.In short,profit and risk are the key factors for rare earth enterprises to implement the extension of the industrial chain.Therefore,this paper constructs the evaluation system of industrial chain extension effect of rare earth enterprises from the dimensions of profit and risk.As a leading company at the front end of the rare earth industry chain,North Rare Earth has formed an industrial pattern based on rare earth resources,smelting and separation,functional materials and high-end applications.Its industrial chain extension characteristics include horizontal extension in the early stage to expand the scale,continuous backward extension to form a complete industrial chain.This paper takes North Rare Earth as the case company,and benchmarks the average value of rare earth and nonferrous industries.Taking profit and risk as the starting point,this paper conducts a preliminary analysis of the profitability level(profitability and cashiness)and profit quality(sustainability and stability)of rare earth enterprises.And then evaluates the risk level of rare earth enterprises within the framework of systemic risk,operational risk and financial risk.The study shows that in the middle and later stages of industrial chain extension,Northern Rare Earth has improved its profitability,and its risk level tends to stabilize in oscillation.Based on the "profit-risk" matrix chart,it can be seen that Northern Rare Earth has changed from "high profit and low risk" to "low profit and low risk" in the early stage of industrial chain extension.It is in the "high profit and low risk" area in the middle and late stage,and shows a trend of increasing profits and stabilizing risks.Secondly,aiming at the profit and risk evaluation of the industrial chain extension effect of rare earth enterprises,this paper further analyzes the main factors affecting the industrial chain extension effect,including national policies,competition pattern,and micro-enterprises(product structure,capital structure,operation management and technological innovation level).On this basis,focusing on the improvement of the profitability of rare earth enterprises within a range of certain risk,in order to truly realize the high-quality development of China’s rare earth industry,this paper puts forward relevant suggestions from the national and enterprise’s perspective.