China may introduce specialized invoices for designated rare earths producers starting this month, which could trigger panic selling by small companies on the domestic market and lead to a short-term price plunge, industry insiders said.
Several companies have said that the invoices will be launched in November by the government to further curb the rampant illegal production of rare earths, according to some industry analysts.
The industry speculation has yet to be officially confirmed, but as one of the effective measures to regulate the market, the introduction of specialized invoices will come out sooner or later, said Wei Chishan, a researcher at the nonferrous metals information provider Shanghai Metals Market.
Lai Zhaotian, deputy general manager of Ganzhou Rare Earth Mineral Industry Co, a State-owned producer of the metals in the rare earth-rich Jiangxi province, said that the company hasn't received any notice from the authorities.
The introduction of such invoices would be in tune with the country's stricter policies to control the valuable minerals. China is the world's biggest supplier of rare earths, and it holds more than 30 percent of total world reserves.
"We expect that the value of the invoices will be closely connected with each company's production and export quotas, which will leave out most of the small producers and traders and let a few big exploration and separation companies stand out as qualified," said Liu Minda, an analyst of nonferrous metals at Huatai Securities Co Ltd.
The receipts, commonly known in China as fapiao, are used mainly to establish the official value of a transaction for tax purposes.
China set a production ceiling of 93,000 tons for the metals this year. Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Co, the country's biggest producer, holds a production quota of 50,000 tons this year, while rival China Minmetals Corp has 5,000 tons.
Prices of rare earths, consisting of 17 elements that are widely used in the manufacturing of hybrid vehicles and cell phones, rose as much as fourfold between January and July on the back of China's tightened measures to control production and export quotas for the sector.
Prices subsequently plunged after the earlier surge eroded downstream players' profits and led to overstocking.
Figures compiled by Shanghai Metals Market showed that the average prices of rare earth oxides declined by about 30 percent in the past three months, with some dropping more than 50 percent.
The introduction of the new invoices might further depress prices in the coming months, because some small companies that cannot obtain the specialized invoices will have to sell their inventories to cash in and flood the market, Wei said.
However, such new measures will in the long run yield a better-regulated industry, with speculators forced to exit the market and illegal miners left with few channels to sell their products without legal invoices, Wei said.
Given the scarcity of these resources, the strategically important rare earths will ultimately be dominated by a few big domestic companies, Liu said.
The State Council issued a directive in May calling for the biggest domestic producers to dominate the market within two years, as part of the government's measures to tighten its grip on the industry and steer it to a sustainable and healthy development track.