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Analysts expect China's FY'20 rare-earth exports to drop YOY

Exports of Chinese rare earths will likely decline significantly in 2020 compared to recent years, according to analysts. Exports have been decreasing in recent months, in line with overseas demand in response to the coronavirus pandemic and tighter domestic supply.

China exported 1,642 tonnes of rare earths in August, dropping 62.3% year on year, according to official customs data released Sept. 7. This followed a year-over-year 69.1% plunge recorded in July when the country exported 1,620 tonnes of rare earths. From January to August, the country's rare earth exports fell 25.7% year over year to 24,377 tonnes.

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Amid rising tensions between the world's two largest economies, U.S. House lawmakers introduced a bill in early September aiming to reduce the country's reliance on China for rare earth minerals by establishing tax incentives for domestic production. China accounted for 80% of U.S. imports of rare-earth compounds and metals from 2015 to 2018, according to U.S. Geological Survey data.

In response to recent speculation over whether China uses its rare earths position as a countermeasure against the U.S., a spokesperson with China's commerce ministry said reduced outbound shipments of rare earths in 2020 was related to changes in international market demand and risks, state-run media network CGTN reported. The spokesperson noted a slowdown in production and downstream operations due to the pandemic.

Hu Yan, a senior analyst with industry data provider Shanghai Metals Market, also noted decreased demand from overseas end-users due to the pandemic, from carmakers to smartphone manufacturers to catalysts producers.

Hu added that Chinese traders have seen a big drop in orders from overseas users in 2020 and especially in July and August, while demand in China remained stable as the country started to recover from the pandemic.

Tight domestic supply of mid and heavy rare earths like terbium is another reason behind the decrease in exports, the analyst said. According to Hu, the price of terbium oxide was recently at its highest level in seven years while production to date in 2020 has dropped 15% year over year.

Strong prices in 2020 for light rare earths like neodymium and praseodymium are also in stark contrast with year-ago pricing, Hu said, adding that market participants' anticipation that the Chinese government will launch a stockpiling program for light rare earth minerals lifted market sentiment.

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Domestic demand from the magnet sector remained strong in 2020 despite the pandemic, according to Zhang Wei, a metals analyst with Shandong-based commodities consultancy Zhuochuang. Zhang said the country's "new energy vehicles" industry and its high demand for rare-earth magnets continues to be an important demand driver in the long term with the government's continuous support to the industry.

Global demand for rare-earth magnets used in the new energy vehicles sector is expected to reach 45,000 tonnes in 2025, increasing at a compound annual growth rate of 18% from 2019 to 2025, according to Zhang. China is the world's largest production base and exporter of rare-earth magnets, the analyst noted.

Official data shows China's rare earth exports have declined since 2016 when the country started to consolidate its rare earth industry as part of its thirteenth five-year campaign to build up an integrated rare earth industry with mining, smelting and separation operations.

Hu expects rare earth exports for full year 2020 to decrease by up to 20% compared to 2019.

The Chinese government recently raised its 2020 quota for rare earth mining by 6.1% year on year to 140,000 tonnes. Zhang said exports will likely rebound from August levels this year, while he expects the declining trend in monthly exports to continue. Zhang expects full-year 2020 exports will decrease by more than the 12.6% year-over-year decline to 46,330 tonnes of rare earths in 2019.