A worker at the site of a rare earth metals mine in Nancheng county, Jiangxi province. [Photo/Agencies]

In 2011, fast-rising prices forced firms out of sector, triggering 5-year slump

China's regulators are trying to cool down the price rally of rare earth, which has seen a sustained price increase since the beginning of this year, after five years of downturn.

The National Rare Earth Office issued a statement on Aug 8 to the six largest rare earth groups in China, including Aluminum Corporation of China Ltd and China North Rare Earth (Group) Hi-tech Co Ltd, asking them to help stabilize the rare earth market, according to industry insiders.

The statement asks the six groups to promote healthy development of the rare earth market, by strengthening industry self-discipline, maintaining production and operational order and strictly following the production control plan.

Part of the reason for the rapid rise in prices since June has been a lack of co-ordination in price settings and the stocking up of supplies in the rare earth market.

These moves have directly caused the soaring price, said Xu Ruoxu, an analyst from Shenwan Hongyuan Securities, adding that the reasonable rise of the rare earth products since earlier this year attracted the attention of speculators, including traders and manufactures.

"Pursuing high profits, they began to slow down the output rhythm and stockpile products in June. The rare earth prices have seen modest gains of about 15 percent from January to May, due to China's economy recovery," Xu said.

Another reason for the rising price from January to May is that China has eliminated capacity by closing many illegal factories, said Zhan Sheng, a nonferrous metals expert from JZ Investment.

The statement asks the six rare earth groups not to take the lead in raising prices, but it may still be hard to hold down the rising tendency, Zhan added.

The rare earth prices were still on the rise on Wednesday with average price of praseodymium-neodymium oxide, the iconic rare earth product, at 435,000 yuan ($65,102) per metric ton, compared with 385,000 yuan on Tuesday.

Statistics show that the average price of praseodymium-neodymium oxide has increased 54 percent in 2017, and the price has risen more than 36 percent in the past two months.

At the same time, the listing prices of the six largest groups have also gone up in conjunction with the continued price rise of rare earth.

The monthly listing price of praseodymium-neodymium oxide from the China North Rare Earth is 420,000 yuan per ton in August, an increase of 53 percent from April's 293,000 yuan per ton and a surge of 27.3 percent month-on-month.

The surging prices of rare earth products may harm the whole industry by squeezing downstream firms, Xu said.

In 2011, surging prices forced many small downstream companies out of the sector and led to a slump in the entire industry for more than five years.

Yuan Hui contributed to this story.