First rare earth exchange to help stabilize market

China's first rare-earth products exchange is scheduled to launch in early October after a year's preparation. It will help further regulate the market and deliver pricing power, said a senior official on Friday.

China is the largest rare-earth producer and exporter, accounting for more than 90 percent of the world's supply. However, the wild price swings of the resources have had a negative effect on Chinese producers.

"The exchange will help the Chinese rare-earth industry to have a bigger say on prices in the global market," said Gu Ming, general manager of the Baotou Rare Earth Products Exchange, during the Fifth China Baotou Rare Earth Industry Forum held in Baotou, the Inner Mongolia autonomous region.

It will act as a pricing, service and financing center for China's rare-earth industry, said Gu.

"The exchange will bring the different production regions closer, raise the transparency of trading prices, adjust long-term supply and demand and stabilize the market," he added. "The trading platform can also provide important information for the government when it makes policy."

In May 2011, the State Council announced guidance for the rare-earth industry, making it a national concern.

The guidance required different authorities and local governments to regulate the exploration, production and trading of the resource and make efforts to crack down on illegal mining and smuggling.

On Wednesday, the central government launched a three-month campaign to crack down on illegal activities in the rare-earth sector again.

Zhou Yong, general manager of a rare-earth trading company in Guangdong province, said the company didn't make money for the first half of the year because of the high level of smuggling.

"Weak demand and low prices were two reasons behind the company's loss, but the biggest reason is smuggling. Compared with them (smugglers), we don't have any price advantage with our exports."

Zhou hopes the exchange can really help the industry and promote fair trading, but added it has a long way to go.

The exchange was initiated by Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co Ltd, the world's largest rare-earth producer.

The company received approval from the local government of Inner Mongolia autonomous region in May 2011 and registered the exchange with another 11 major rare-earth companies. The total registration capital stood at 120 million yuan ($19.5 million) in August 2012.

Zhang Zhong, general manager of Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co, said the trading platform will form a market-oriented price index in the long run, which is beneficial for the sustainable development of the global rare-earth industry. "We hope the exchange can carry out futures trading in the future," Zhang said during the forum.

According to Gu, the exchange will at first provide spot and forward trading for companies, excluding futures. All rare-earth products throughout the production chain can be traded on the platform.

However, he said Baotou Steel Rare-Earth will not put all its products on the platform at the beginning because it takes time for new exchanges to grow. He denied the exchange will attract hot money, saying there will be detailed rules to prevent that from happening.

He said the online trading platform will hold a test run in September.