A Research On The Fair Price Mechanism Of Rare Earth International Trade

As a valuable non-renewable resource, Rare Earth is widely used in sophisticated technology and military fields. In the international rare earth market, the United States, Japan and the European Union are the major consumers of rare earth raw materials. As the largest rare earth supplier, China’s rare earth reserves, output and export volume is ranked first in the world. China is supplying more than90%the world’s rare earth consumption with its36%reserve. However, China has not attained its justified say matching it as a rare earth export power in the international market although China occupied a lion’s share since China increased its output and export in1985. The value added out of rare earth’s secondary processing or re-utilization by rare earth consumption countries increased several tens or even hundreds of times.Due to its strategic position, non-renewability and scarcity nature, the Chinese government has adopted a series of measures to protect rare earth resources, such as reducing export quotas, raising export tariffs, levying resource tax, and strengthening environmental protection inspection, which led to some price increase since early2011. These measures taken by Chinese government were criticized by major rare earth consumers. They are appealing to the WTO against the Chinese government’s rare earth export restrictions. Rare earth export conflict is gradually towards the tendency of upgrading.In addition, dealers’hoarding rare earth products for rising profit speculation and hot money’s involvement, leading to exponential price growing of rare earth concentrates and oxides since the beginning of2011. Did the recent price rise of rare earth resulted from the value return or profit speculation? It is uncertain.All the following problems need to be studied, including:is RE international market pricing is fair and reasonable? Is the value of RE raw materials undervalued? Is the current RE price enough to compensate the producers’cost and appropriate profit?This paper aim to study the fair pricing mechanism, establish an intrinsic and fair value compensation system and estimate the shadow price to determine the compensation fairness for the intrinsic rare earth value based on the innovative international trade fair pricing mechanism theory for non-renewable resources. This paper analyzes the factors affecting trade forces fairness between international RE buyers and sellers. Some policy suggestions are put forward to encourage RE international price fluctuates within the fair price range.The core opinion of this paper is:the major deciding factors for RE international trade fair pricing mechanism are intrinsic value compensation and trade forces fairness (including fairness of Industry trade forces and national policy transactions forces) based on the fairness of the RE international trading platform system.The paper can be divided into seven chapters. The first chapter is the introduction. It explains some major concepts and research methods, put forward the core argument and outline based on elaborating the research background and significance. It also states the innovative points and limitations. International trade forces is defined as international trading subjects’ability affecting international price by means of industry factors and system factors, including trading forces for suppliers and consumers’ industry organizations, as well as trading forces for national policies.The second chapter is the literature review. It summarizes the historical researches on fairness and equitable price, including the research status of the determining and measurement of fair and equitable price, equitable price mechanism in the international trade. Then it summarizes the literatures on pricing mechanism, including the description of researches on pricing mechanism of resource products in international trade by focusing on the two components of fair pricing mechanism, value compensation of resource products and trading forces fairness. The research progress of RE international pricing system and its empirical studies are summarized. A comprehensive literature is the conclusion.Chapter3is the establishment of international trade fair price system for non-renewable resources. It discusses trading platform’s fairness system, intrinsic value’s fair compensation for trading target, trade subjects’trade forces fairness. It then puts forward a fair price mechanism for non-renewable resources by analyzing and verifying the economic mechanism that the formation, operation and management of non-renewable resources’fair price mechanism is co-determined by the resource’s intrinsic value fair compensation mechanism and trading forces fair mechanism composed by trade forces of industry organizations and those of national policy.Chapter4is the global tendencies for rare earth production, trade and supply and demand. It introduces rare earth’s reserve and production from the overall perspective by analyzing major countries’rare earth trade, consumption and industry situations. Analysis on the global production capacity, overall and structural supply-demand is performed by predicting the supply-demand situation in the following five years. Chapter5is the study of rare earth intrinsic value compensation system fairness. Based on RE’s value composition in the international market, it studies the major factors affecting the system fairness of rare earth intrinsic value compensation, including value fairness compensation factors on rare earth interests, business value, inter-generational value and ecological value. China is applied as the case to measure the intrinsic value compensation fairness for rare earth trade. The actual price of RE concentrate in Baotou Steel Rare Earth Hi-Tech Co., Ltd (REHT) is calculated by adding the shadow price and environment cost. The actual price and sale price are contrasted to determine the price fairness of RE concentrate based on the intrinsic value fairness compensation system.Chapter6is the fairness mechanism of rare earth transactions forces. It studies the factors affecting the trading forces fairness of industry organization and national policy as well as their conducting mechanism on the basis of the economic mechanism that RE trading forces decides its international price. A market pricing model is constructed to measure RE trade forces fairness by using factors affecting the trading forces fairness of industry organization and national policy as two variables.Chapter7is conclusions and policy implications. It makes a general summarization on the whole text. Policy recommendations are then put forward from the aspects of intrinsic value compensation, industrial structure adjustment and the implementation of the strategic reserve system.The major research methods are listed as follows:firstly, theoretically inductive and deductive methods, mainly used in discussing fair price system for non-renewable resource products.The second, empirical method is applied to construct RE intrinsic value compensation system by combining mathematical economics and econometrics to measure RE’s shadow price in chapter5. Empirical method is also used in Chapter6to measure the trading forces fairness in RE international market. The third is Comparative approach. It is practiced in Chapter6to analyze the major factors affecting national policy’s trading forces by contrasting RE trade, management and strategic policy of major suppliers and consumers.The following are some conclusions:a global fair RE price is the fair and balanced outcome of the intrinsic value fairness compensation as well as international trade forces based on the system fairness of international trade platform. The fair price for rare earth is the de facto price at Marshall Balance under the condition of perfect competition.The RE price formed out of international trade fairness pricing system demonstrates the equilibrium fluctuation range between the supply and demand of RE intrinsic value compensation under the actual condition of imperfect competition. The price of rare earth international trade fair pricing mechanism is a fair reflection of the intrinsic value of the compensation of rare earth products in the industrial organization of trading forces and the forces of national policy transactions under the action of supply and demand equilibrium trading range under the actual imperfect competition condition.Build rare earth intrinsic value of compensation system in the intrinsic value of the compensation fair mechanism of rare earth, the establishment of the shadow price determination model to concentrate products of Inner Mongolia Baotou Steel Rare Earth Hi-Tech is the object of empirical research to determine fair compensation for the price of the concentrate and its market price comparison, the Baotou Steel concentrates intrinsic value has not been fully compensate the conclusion.Fair mechanism of rare earth forces of international trade transactions, the decomposition of rare earth international trade transactions forces Factors Analysis and fair mechanism of trading forces and international trade policy trading forces in two parts for the industrial organization, obtained the international market of rare earth supply higher side strong market competition and demand, market monopoly coexistence of oligopolistic markets a wide range of conclusions.Another important conclusion of the1988-2008years during the12kinds of rare earth products in China, classified in accordance with the categories of light rare earth and heavy rare earth, is estimated to eliminate the inflation factor of rare earth real price index and price fluctuations in the level analysis, the12kinds of rare earth raw materials prices almost more substantial level of similar products below the base period1988, the more significant conclusions of the decline of the price level of the heavy rare earth products. In addition, the establishment of fair quantify rare earth international trade transactions forces with the price to the market model, come to the rare earth in the international market, the forces of supply and demand side of the transaction does not meet the fair and balanced demand-side trading forces greater than conclusion of the forces of supply-side trading.