The Ministry of Industry and Information Technology (MIIT) released the first batch of RE mining quotas on 25th April, which reported a 40% increase in the rare earths mining quota between H1–2017 and H1–2018. The mining quota is typically split into two batches by the MIIT, with both batches being equal in recent years. Inner Mongolia remained the province with the largest allotted quota, with 41,650t REO light rare earth ores assigned, compared to 29,750t REO in the first batch of 2017 quotas. Jiangxi province remained the province with the largest heavy rare earth ore mining quota at 6,300t REO, compared to 4,500t REO in the first batch quota of 2017. If the 2018 second batch quota matches the first, as has been the case in previous years, an annual quota of 147,000t REO would be assigned, representing an increase of 42,000t REO (40%) compared to 2017.
Roskill view: The increase in the mining quota, though dramatic, may have only limited impact on the rare earth market as it controls only the mining of rare earth ores and not the production of refined and separated rare earth products consumed by industry.
Quota increases may represent the replacement of illegal raw material supply by legal operations, placing further pressure on illegal sources of material via increasing legal supply. Government efforts to tackle Chinese illegal production of rare earth have been increasingly successful, with greater material tracking and inspections being implemented. With these factors in mind, the increase in the mining quota is expected to stabilise the Chinese domestic rare earth market and allow downstream industries consuming rare earths, particularly permanent magnet production, to maintain growth. Any negative price reactions are expected to be short-lived, as falling REE prices would disincentivise output from separation facilities and cause supply availability to tighten.