Rare earth materials are restricted in export, why the price is still rising?
Shares of publicly traded U.S. technology companies plunged after the U.S. banned chip exports to China.
But China's ban on rare earth exports has only spurred a surge in rare earth stocks. What is the logic? In fact, the fundamental lies in supply-side reform.
This time, the ban on rare earth exports is more of a strategic consideration, as rare earths are scarce resources, reducing exports makes strategic sense.
This kind of strategic operation cannot be achieved by private enterprises or local state-owned enterprises. Therefore, the reform of state-owned enterprises in recent years is to open up the downstream consumer industries. On the other hand, the mineral resources are integrated, and the state-owned enterprises and private enterprises are acquired by the central enterprises, so that the pricing power of resources and minerals can be controlled through the central enterprises, and product prices can be driven by reducing supply.
The reason why domestic funds do not have heavy holdings of rare earths is that they have been adhering to the concept of value investment, foreign capital is more focused on the profitability of enterprises, rather than to gamble on policy. In fact, it is not uncommon for central enterprises to buy local state-owned and private enterprises to drive up the price of products. In 2015, when the price of coal and steel was low, central enterprises made large-scale acquisitions of local state-owned enterprises and private enterprises to integrate the industry and reduce supply, which pushed up the price of downstream resources and triggered the black bull market in 2016. Therefore, there is every reason to believe that the price of rare earth can still rise.
Why is rare earth permanent magnet so popular these days? What caused its price to rise by more than 33% in just two days? The price of rare earth carbonate in Shanghai, for example, was quoted at RMB19000/ ton on June 12, while today's price reached RMB29000/ ton, rising by more than 35% in just two days. But that still leaves plenty of room for appreciation from a peak of 110,000 tonnes in 2011. As a global scarce resource, the price of rare earth in China does not need to look at the international market. At the same time, the price of rare earth settled in RMB can promote the internationalization of RMB. Therefore, it is certain that the price of rare earth will not be low in the future.