I see that news Baotou steel says RE profits will be down 50% to 60% for the 2012 reporting results.
China is going to change their domestic RE supply system. They were allowing any RE production by anybody, by any method. Now they are consolidating. Baotou had a single move in December where they somehow acquired (OK ... we know it was by government order) 12 other RE companies. The fact is that cheap RE's were a strategic national economic plan that worked. But then they imposed the embargo on Japan during a critical confrontation, and they ran the price thru the ceiling with their export limits. Now with the natural fallout from that power grab, and the natural fallout from a global economic contraction, they are seeing a slow response. Japan, in particular is taking a national interest in securing non-China supply. The US is monitoring, and could create strategic stockpiles. Beyond critical price points, substitutes are being introduced (lanthanum was a critical petroleum cracking catalyst ... but inferior chemistry formulations are more economical at high lanthanum prices, and so on).
Baotou Steel has the government behind it in bringing control to the production of RE's. China can sidestep the WTO actions against a Chinese government overt control of RE's by putting the control into the hands of a "private" monopoly, which is then able to carry out the same sort of policies, without any legal problems. Consider if the US government says no Dreamliners for the Chinese airlines ... that is a legally problematic position in a putative free-trade relation. But if Boeing says no Dreamliners for Chinese airlines, that is simply a rogue company being crazy.
China is also facing enormous pollution issues, across the board. Beijing has the worst air pollution in the world. The RE processing from the wildcat producers (government sanctioned to go get it) was awful. Baotou is at least minimally responsible, and once the wildcat producers are under control of a few producers, the production practices can be filtered and the more responsible practices implemented more uniformly.
Baotou costs are going up, even as they acquire a monopoly. Eventually they will raise the internal China price of RE's. The current 2 tier price, internal and export, is sustained by an environmental cost subsidy and overt government actions.
It is a funny world. Baotou can sell in China at half the price they can sell in Japan. And the Chinese government orders the RE supplies, prices, and exports. Either Baotou is ordered to acquire 12 other RE companies in one fell swoop, or 12 other RE companies are ordered to sellout to Baotou in a single move, and then Baotou Steel reports corporate results as though they are a private company. I am always puzzled by the strange mix of free markets and official government companies in China.
In a filing on the Shanghai stock exchange, 12-27-2012, Baotou states they have signed "consolidation and restructuring" agreements with 12 other firms based in Inner Mongolia.
Under the terms of the agreement, the 12 companies will each transfer 51% of equity ownership to Baotou Steel AT NO COST. Baotou will then plan and manage all the companies.
Nice. I want to buy 12 Chinese RE companies for nothing. Of course I am sure there is some Chinese Yahoo MB, where the equity investors can argue about what the value of the remaining 49% is ... But that is really a question for the Chinese government.