1st Ld-Writethru-China Focus: Heavy metal losses for China's rare earth companies

Two of China's major rare earth miners reported sharp falls in profits in 2014, in the face of poor demand and weak prices.

Major producer, REHT reported on Friday 5.84 billion yuan (949 million U.S. dollars) in operating revenue in 2014, down 31.1 percent from 2013. Net profits plummeted by 57.4 percent to 643 million yuan, according to the company's annual report.

On the same day, China Minmetals Rare Earth Co. posted a 64.8 percent drop in operating revenue to 702 million yuan and its balance sheet turned from black to red with 55.8 million yuan in net losses.

China Minmetals deliberately reduced sales last year, leading to great losses. Both enterprises blamed weak demand and low prices. Rare earth prices are at a multi-year low, despite a slight rebound at the end of 2014.

Upgrading the industry, big enterprises were merged with dozens of small miners around the end of last year to establish six major rare earth groups: REHT, China Minmetals, Xiamen Tungsten Co., Aluminum Corporation of China, Guangdong Rare Earth Co. and China Southern Rare Earth Group.

The rare earth branch of Xiamen Tungsten made a loss in 2014 and the remaining three firms have yet to release their annual reports.

Rare earths, a class of 17 minerals, are some of the most sought after metals due to their military use and role in green technology like wind turbines and car batteries. China meets over 90 percent of the world demand, but at the cost of much pollution.

To curb environmental degradation and protect resources, China began to set quotas and high duties on rare earth exports in 2010, causing friction with the European Union, Japan and the United States. A WTO ruling last August declared the measures inconsistent with WTO rules and China's Accession Protocol. China removed quotas on Jan. 1 this year and will cancel export duties on May 3.

China's rare earth industry has always been beset by problems including illegal mining, smuggling and a lack of competitiveness due to weak research and development.

"When all barriers are lifted, regulators will face fresh pressure and will need effective instruments if the industry is to prosper," said Wu Yiding of Jiangxi University of Science and Technology.

The Ministry of Industry and Information Technology, watchdog of the rare earth industry, said new projects will be controlled, production planned and exports regulated. Endi