China’s rare-earth miners suffer profit falls as new supply chains rise

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Global shifts and shaky domestic economy hit prices in strategic industry.

Soil containing rare-earth elements for export is transported at a port in Lianyungang, in China’s Jiangsu province.   © Reuters

China’s rare-earth miners and refiners are suffering from falling revenues and profits despite the government’s efforts to protect the strategic industry, as competitors scurry to build their own supply chains and the domestic economy remains shaky.

China Rare Earth Resources and Technology, a core listed arm of state conglomerate China Rare Earth Group, reported a 5.4% year-on-year decline in annual revenue for 2023, to 3.98 billion yuan ($550 million). Its net profit plunged by 45.7% to 417.67 million yuan.

In a disclosure to the Shenzhen exchange dated Saturday, the state-owned miner said the rare-earth industry is going through a “fundamental stage” characterized by accelerated consolidation and structural adjustments on a global scale. It said this had caused prices to fall, eroding its earnings.

The story is much the same across the Chinese industry. Although the country remains by far the world’s top producer of rare-earth minerals — crucial for batteries, electric cars and other high-tech products — others are enhancing their own production capabilities.

The latest data from the U.S. Geological Survey (USGS), which is widely quoted by Chinese authorities and companies, shows global reserves of the 17 rare-earth elements at 110 million tonnes, with China comfortably leading at 44 million tonnes — 40% of the total. Trailing China were Myanmar, Russia, India and Australia.

The USGS said production in 2023 was also led by China, which turned out 240,000 tonnes, about two-thirds of global output. The U.S. was the second largest producer, followed by Myanmar, each of which had more than tripled its output over the year.

China Rare Earth Resources pointed out that “foreign countries are now proactively installing rare-earth supply chains independent from China,” highlighting endeavors in places such as the U.S., Australia and Southeast Asia. For certain types of minerals, supply chains “have already been established,” it said.

As rare-earth mining is tightly regulated by China’s central government, more domestic companies have also been “importing foreign-mined rare-earth and manufactured products” in recent years, China Rare Earth Resources noted in its statement. Combined with a slowing domestic economy pressuring demand, the company flagged a further “risk” of falling prices.

While China Rare Earth Resources blamed its steep annual profit dive on an asset depreciation of 124 million yuan, “mainly due to a decrease in inventory,” its first-quarter results show the pressure is not abating.

Revenue dropped by 81.9% to 301.55 million yuan, leading to a net loss of 288.76 million yuan, versus a net profit of 108.97 million yuan in the same period a year earlier, according to its release over the weekend. The disclosure was light on detail, but the company explained that the deterioration was mainly due to the continuous fall in rare-earth product prices and said it was making “adjustments to its sales strategy” to change products and volumes, without elaborating.

Shenghe Resources Holding, a Shanghai-listed rare-earth company backed by the Finance Ministry, saw its annual net profit fall by 79% for the year to 332.73 million yuan, according to its own announcement over the weekend. While revenue was up by 6.7%, buoyed by increased volume, the company attributed the sharp drop in the bottom line to “prices of major rare-earth products going downward with oscillation.”

The company also pointed to the “influence of structural differences in supply demand and demand” in the rare-earth market.

On the supply front, it said imports from places such as Myanmar have “drastically increased.”

Official data from Chinese customs bears this out, showing that imports of various rare-earth minerals in the form of oxide products increased by about 60% to 11,000 tonnes in 2023. A tightly controlled domestic cap on rare-earth mining was also loosened to allow aggregate domestic production of the minerals to increase by 21%, to 11,000 tonnes.

Yet when it came to demand, Shenghe Resources said “growth was relatively feeble,” influenced by factors such as the weaker-than-expected macroeconomic recovery, geopolitical tensions and technological innovations. The company said that due to the supply-demand pressure, the average annual selling price of benchmark praseodymium-neodymium oxides in 2023 was 530,000 yuan per tonne, down 36% from 2022.

The picture was similar at China Northern Rare Earth (Group) High-Tech, the largest rare-earth miner in the country by volume. Its annual net profit declined by 60% on the year, to 2.37 billion yuan. In its annual report published earlier in the month, the company also referred to the rise of new rare-earth supplies.

The company admitted that “China’s position, effect and influence” over the industry had been hit by “varying levels of shock” due to moves in the U.S., Australia, Laos, Myanmar and Africa, where “multiple supply arrangements of rare earths are already being set up, independent from China.”

Another industry player, Xiamen Tungsten, reported an increase in revenue and net profit for 2023. But its rare-earth segment suffered a 10.6% drop in revenue to 5.49 billion yuan, while profit dipped by 54.5% to 144 million yuan. Like the others, the company blamed the “continued fall in the raw materials prices and the influence of intensified competition.”

The company’s first-quarter results, disclosed at the same time, suggest the headwinds are only strengthening, with revenue dropping 26.7% and profit sinking 64.8% on the year, virtually for the same reasons.

After Beijing recognized the strategic importance of rare earths, it stepped up regulating the industry around 2010. The central government named it one of six sectors facing severe overcapacity, in which consolidation was strongly encouraged — alongside autos, steel, cement, machinery building and aluminum.

From time to time, Beijing has used its global position as the largest producer and exporter of rare-earth minerals for political purposes. It first weaponized that power when it imposed an embargo against Japan, the largest importer of China’s minerals, as tensions escalated over the Senkaku Islands in the East China Sea. Japan controls the small islets and does not acknowledge any disputes over sovereignty, while China claims the islands, which it calls Diaoyu.

China further enhanced its grip on the industry after a series of consolidations, currently leaving four main groups. At the end of 2021, China Rare Earth Group was established through a merger of state-owned miners under Aluminum Corp. of China, China Minmetals and Ganzhou Rare Earth Group. The entity became classified as a “central company,” one of the fewer than 100 large-scale elite corporations directly controlled by the State Council.

President Xi Jinping and state leaders have repeatedly and publicly emphasized the sector’s importance. In March, when Xi was visiting one of the producing regions in the southwestern inland province of Hunan, he stressed the need to “further upgrade” resource development and utilization of rare earths, along with coal. This was in the context of mutually enhancing “high-quality growth” and providing a “high level of security” — both pet themes for Xi.

But while China’s focus on the sector may have strengthened its players, it has also spurred other countries to work on their own supply chains — the impact of which is now being felt.