Rare earth metals, a group of 17 metals, are vital for manufacturing high-tech products ranging from smartphones and wind turbines to electric car batteries and missiles.
The Baotou Rare Earth Products Exchange, China’s first national trading platform of its kind, is expected to go into use on a trial basis in October.
Trading systems are currently undergoing internal testing and are expected to become operational in October, said Gu Ming, general manager of the exchange, at the ongoing fifth Baotou China Rare Earth Industry Forum.
The exchange will begin to recruit members starting from mid-August, Gu said.
“There are many institutions and enterprises interested in our exchange and some have already contacted us,” Gu said.
“Our exchange will also carry out market promotions to expand our influence,” he said.
The exchange will handle spot trading for rare earth products and will not engage in any business related to futures at present, he said.
“We will do it step by step and build a firm foundation. We want to introduce futures trading later on if possible, as futures are a stronger indicator of market trends,” Gu said.
The exchange is also expected to introduce a rare earth product price index in the future, Gu said.
The exchange was officially launched on Aug. 8, 2012. It was initiated by Baotou Steel Rare Earth (Group) Hi-Tech Co., China’s top rare earth producer, and another 11 firms and institutions with a registered capital of 120 million yuan (19.5 million U.S. dollars).
The 12 companies and institutions hold 88 percent and 82.3 percent of China’s rare earth mines and smelt separation products, respectively, as well as provide 79 percent of China’s rare earth exports, said Zhang Zhong, general manager of Baotou Steel Rare Earth (Group) Hi-Tech Co.
The exchange is located in the city of Baotou in north China’s Inner Mongolia Autonomous Region, home to more than half of the world’s light rare earth output.
Previously, China’s rare earth market was largely opaque, as transactions were not made in public markets and always ran in small volumes. Only limited amounts of pricing and transaction data have been made available to the public.
China now supplies more than 90 percent of the global demand for rare earth metals but has no pricing power over rare earth products. Its rare earth reserves account for just 23 percent of the world’s total.
“One important reason for that is the fact that China’s rare earth production capacity is scattered,” said Yang Zhanfeng, head of the Baotou Research Institute of Rare Earth.
“Foreign buyers make inquiries to multiple Chinese rare earth manufacturers at the same time and induce Chinese firms to lower their prices, which seriously weakens our pricing power,” Yang said.
The establishment of the exchange is intended to regulate the sector and strengthen its pricing power for the resources.
“The exchange will rectify irregular pricing practices among Chinese firms through standardized spot trading and the creation of a transparent information release system,” Yang said.
The exchange will help improve the price-forming mechanism for global rare earth products and strengthen China’s power on the international stage, said Ma Peng, former head of the Baotou Research Institute of Rare Earths.