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Rare-earth giant suffers profit drop

By Wang Xinyuan (Global Times)

08:25, August 20, 2012

Inner-Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Co, China's largest rare-earth producer, announced over the weekend that its net profit fell more than 20 percent in the first half of this year from a year ago, due to falling prices and a slowdown in demand, strengthening market speculation that the company might cut or even suspend production to stabilize prices.

The company achieved net profit of nearly 1.6 billion yuan ($252 million) in the first six months, Baotou Steel Rare-Earth said in a mid-year financial report filed with the Shanghai Stock Exchange Saturday.

Sliding prices in a sluggish market as well as rising production costs had eroded the company's profits, according to the company.

Rare earths are a group of 17 metals widely used in the field of electronics, iron and steel, nonferrous metals and machinery manufacturing.

"The slowdown in the economy has dragged down demand for rare-earth products," Chen Zhanheng, deputy secretary-general of the China Rare-Earth Industry Association, told the Global Times.

To cut costs amid the faltering economy, many industries have tried using substitutes for rare earths, or using less rare earths during production, Chen said.

Many air conditioner producers have replaced rare-earth magnets with ferrite magnets in their air compressors, Chen noted.

The sector experienced a roller-coaster ride in 2011, with the prices of some rare-earth products reportedly soaring in June to a level six times higher than early in the year, partly a result of the government strengthening controls on toxic mining and processing by consolidating the rare-earth industry.

But rare-earth prices have fallen by 60 to 70 percent since mid-2011, the Guangzhou Daily reported Sunday.

Baotou Steel Rare-Earth has asked its subsidiaries to suspend production in an effort to turn around the falling prices, the National Business Daily (NBD) reported Friday, citing sources from the company.

This is not the first time that the company has cut production. It previously announced a one-month suspension of production on October 19, 2011.

It is hard to say whether a short-term suspension of production could boost prices, as many factors such as sluggish demand and competition from small illegal miners are beyond the control of Baotou Steel Rare-Earth, Du Shuaibing, an industrial analyst with Beijing-based raw material information portal, told the Global Times.

Illegal mining has had a huge impact on Baotou Steel Rare-Earth's business, Zhang Zhong, general manager of the company, told the NBD.

China's Ministry of Land Resources set a mining quota of 93,800 tons of rare-earth oxides for 2011, but rampant illegal private mining produced at least 70,000 tons of additional rare-earth oxides last year, the newspaper reported.

Baotou Steel Rare-Earth and nine other firms and institutions jointly launched a rare-earth trading platform on August 8 to strengthen their pricing power.

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