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Simulating producer responses to selected chinese rare earth policies

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  • Brown, Maxwell
  • Eggert, Roderick

Abstract

This study explores the effects of Chinese rare earth stockpiling, environmental taxation, and improvements in recovery rates on rare earth markets. It uses a Stackelberg model with a leading producer (legal Chinese producers) and two sequential followers (illegal Chinese producers and the Mount Weld mine in Australia), each producing multiple rare earths. The model is parameterized for the production and prices of separated rare earth oxides (REOs) from ore. Counterfactuals involving Chinese policies are compared to the no-policy, business-as-usual (BAU) scenario. The five counterfactuals are: (1) further Chinese State Reserve Bureau (SRB) stockpiling of neodymium, (2) further SRB stockpiling of dysprosium, (3) an environmental tax on the production of legal Chinese rare earths, (4) increased recovery rates of neodymium at legal Chinese operations, and (5) increased recovery rates of dysprosium also at legal Chinese operations. The BAU scenario and five counterfactuals are run with (a) four different levels of reference illegal Chinese production and (b) with and without the Chinese production quota, yielding 48 total outcomes (6×4×2). The first finding is that any SRB stockpile purchase increases the price of the stockpiled REO and increases legal Chinese ore production. However, given co-production, increased ore production involves more production of all REOs, and the prices of non-stockpiled REOs decrease. Thus if the stockpiled REO represents a large (small) portion of illegal Chinese and Mount Weld revenue, then illegal Chinese producers and the Mount Weld mine will increase (decrease) their production. An environmental tax decreases legal Chinese production, increases production by illegal Chinese producers and Mount Weld, and increases prices of all REOs. Increased legal Chinese recovery rates lead to increased legal Chinese production, decreased production by illegal Chinese producers and Mount Weld, and decreased REO prices. Increased levels of reference illegal Chinese production (a) exacerbate the policy-driven production increases or dampen production reductions of illegal producers and (b) conversely, for legal Chinese producers, reduce policy-driven production increases and further increase production reductions.

Suggested Citation

  • Brown, Maxwell & Eggert, Roderick, 2018. "Simulating producer responses to selected chinese rare earth policies," Resources Policy, Elsevier, vol. 55(C), pages 31-48.
    • Handle: RePEc:eee:jrpoli:v:55:y:2018:i:c:p:31-48
    DOI: 10.1016/j.resourpol.2017.10.013
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    References listed on IDEAS

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    1. Mancheri, Nabeel A., 2015. "World trade in rare earths, Chinese export restrictions, and implications," Resources Policy, Elsevier, vol. 46(P2), pages 262-271.
    2. Wan, Rui & Boyce, John R., 2014. "Non-renewable resource Stackelberg games," Resource and Energy Economics, Elsevier, vol. 37(C), pages 102-121.
    3. Massari, Stefania & Ruberti, Marcello, 2013. "Rare earth elements as critical raw materials: Focus on international markets and future strategies," Resources Policy, Elsevier, vol. 38(1), pages 36-43.
    4. Han, Aiping & Ge, Jianping & Lei, Yalin, 2016. "Vertical vs. horizontal integration: Game analysis for the rare earth industrial integration in China," Resources Policy, Elsevier, vol. 50(C), pages 149-159.
    5. Packey, Daniel J. & Kingsnorth, Dudley, 2016. "The impact of unregulated ionic clay rare earth mining in China," Resources Policy, Elsevier, vol. 48(C), pages 112-116.
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    2. Jianyun Chen & Wenxing Zhu & Xianping Luo, 2022. "Government Reserve of Rare Earths under Total Quota Management: An Interactive Game between Government and Rare-Earth Firms," Sustainability, MDPI, vol. 14(22), pages 1-19, November.
    3. Xiao, Shijiang & Geng, Yong & Rui, Xue & Su, Chang & Yao, Tianli, 2022. "Behind of the criticality for rare earth elements: Surplus of China’s yttrium," Resources Policy, Elsevier, vol. 76(C).
    4. Yufeng Chen & Biao Zheng, 2019. "What Happens after the Rare Earth Crisis: A Systematic Literature Review," Sustainability, MDPI, vol. 11(5), pages 1-26, March.
    5. Becker, Jonathon M., 2021. "General equilibrium impacts on the U.S. economy of a disruption to Chinese cobalt supply," Resources Policy, Elsevier, vol. 71(C).
    6. Ge, Jianping & Lei, Yalin, 2018. "Resource tax on rare earths in China: Policy evolution and market responses," Resources Policy, Elsevier, vol. 59(C), pages 291-297.
    7. Xia, Qifan & Du, Debin & Cao, Wanpeng & Li, Xiya, 2023. "Who is the core? Reveal the heterogeneity of global rare earth trade structure from the perspective of industrial chain," Resources Policy, Elsevier, vol. 82(C).
    8. Zhou, Mei-Jing & Huang, Jian-Bai & Chen, Jin-Yu, 2022. "Time and frequency spillovers between political risk and the stock returns of China's rare earths," Resources Policy, Elsevier, vol. 75(C).
    9. Chai, Song & Zhang, Zhicong & Ge, Jianping, 2020. "Evolution of environmental policy for China's rare earths: Comparing central and local government policies," Resources Policy, Elsevier, vol. 68(C).
    10. Seiler, Volker, 2021. "China-to-FOB price transmission in the rare earth elements market and the end of Chinese export restrictions," Energy Economics, Elsevier, vol. 102(C).
    11. Yanjing Jia & Chao Ding & Zhiliang Dong, 2021. "Transmission Mechanism of Stock Price Fluctuation in the Rare Earth Industry Chain," Sustainability, MDPI, vol. 13(22), pages 1-21, November.
    12. Hau, Liya & Zhu, Huiming & Yu, Yang & Yu, Dongwei, 2022. "Time-frequency coherence and quantile causality between trade policy uncertainty and rare earth prices: Evidence from China and the US," Resources Policy, Elsevier, vol. 75(C).

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