Rare earth elements undervalued 01

   Rare earth elements are referred to by many names such as "vitamins for industry" and "elements of the future". Their importance lies in their being widely used in industries, especially electronic devices.China produces, uses, reserves and exports the highest amount of rare earth. The rare earth market in the country was disorderly before 2005 because of the lack of proper supervision and regulation.

   In fact, chaos was the name of the game until five years ago as many small-sized enterprises, with poor efficiency and no long-term plans, exploited rare earth. The rare earth metals were not only wasted because of poor storage facilities, but also some strategically important ones were smuggled out of the country, dealing a blow to the national economy and security.But local government departments have now taken measures, such as adjusting the export quotas and increasing tariff ratios, to restore order and regain control of the pricing rights. Thanks to their efforts the situation has improved to a large extent.Now that the central government has decided not to issue more permits for extraction and trade in rare earth in the near future and Chinese enterprises have a larger say in setting its price, one can hope over-exploitation of the elements would be controlled. But some deep structural problems still exist, which threaten to limit the long-term development of the industry.The most urgent of these problems is the pricing rights.

   China is the largest producer and exporter of rare earth, but it does not enjoy enough rights to set its price in the international market. This can be partly attributed to its "atom-like" internal market structure. The number of Chinese enterprises extracting and exporting rare earth is too large. But being small, none of these enterprises is strong enough to influence the price.According to the laws of economics, an oligopoly favors giant enterprises (which are few in any industry). But China is no oligarch, even though it is the largest producer of rare earth.So to strengthen its pricing rights, China should first restructure the domestic rare earth market. Several enterprises have formed loose alliances or cartels to have a larger say in the price mechanism and to better protect the precious resource.