Inner Mongolia Baotou Steel Rare-earth (Group) Hi-tech (600111.SH) announced to temporary stop production of its smelting and separating enterprises for one month from 19 Oct., 2011, including smeltery directly subordinated to Baotou Steel Rare-earth, Baotou Huamei Rare Earth Co., Ltd., Inner Mongolia Hefa Rare Earth Science & Technology Development Co., Ltd., ZIBO BAOSTEEL LINGZHI RARE EARTH HI-TECH. During the shutdown period, Baotou Steel Rare-earth will suspend raw material supply for the above mentioned smelting and separating enterprises and external cooperative enterprises.

 Apart from aiming to stabilize the declining price of rare earth, the shutdown is also stalling tactics for running out of production quota which was made in the beginning of the year. The total rare earth exploitation quota is 93,800 tons in China for this year, wherein the quota for light rare earth and medium-heavy rare earth was 80,400 tons and 13,400 tons respectively. The shutdown will not severely impact the downstream enterprises; due to most of them have reserves for 2 or 3 months use. The specific impact should refer to the length of shutdown period and the influenced production volume.

 Output of Rare Earth in China, 2005-2011E (KT, REO)

Source: NBS, ResearchInChina 

In addition, the shutdown will probably lead to rare earth industry reshuffle. In earlier days, the rocketed price of rare earth resulted in over-exploitation of rare earth resources, which brought about the increasing exploitation volume and supply volume. Now the industry is descending obviously, and the demand of downstream industry sharply slows down, all of which will inevitably influence the demand for rare earth. The high price of rare earth has made the downstream enterprises overburdened. Besides, substitutes also restrain the demand for rare earth. The industry tends to go downturn.