China sets up new state-owned rare earth group following merger

BEIJING (Reuters) - China has set up a new national rare earths company, China Rare Earth Group Co, that will operate under the state asset regulator following a merger of three rare earth producing entities in the world's largest producer of the minerals.

China's State Assets Supervision and Administration Commission (SASAC) announced the company's establishment but gave few details.

State media CCTV reported that the new conglomerate aimed to become a top-tier player in the exploration and trade of rare earths that are used in consumer electronics and military equipment.

SASAC would hold 31.2% of shares of the new entity, while China Minmetals Rare Earth Co Ltd, Chinalco Rare Earth and Metals Co Ltd, and Ganzhou Rare Earth Group Co Ltd would each hold 20.3%, CCTV reported.

Moves to consolidate China's "Big Six" state-run rare earth companies have been seen as China's way of boosting its influence over pricing, as the country is the world's biggest producer of rare earths and controls 85%-90% of the rare earths processing sector.

Following the merger, China will have four state-run rare earth firms. Based on China's rare earths output quotas for the first half of 2021, CRU Group estimates the new entity will be the country's second-largest producer of overall rare earths output, and account for around 70% of China's heavy rare earths output.

China's dominance of the sector has caused an uneasy reliance on Chinese supply for countries like the United States and Britain, which have acknowledged the national security risks this entails.

And amid tensions between China and the United States, automakers in the West are also trying to reduce their reliance on rare earths, and have been looking to replace the minerals or limit their use.

China Minmetals said late on Wednesday that it would merge with Chinalco and China Southern Rare Earth Group Co, which Ganzhou Rare Earth is the parent company of, into a new entity after flagging in September that this restructuring was underway.

Shares of China Minmetals rose as much as 8.5% on Thursday morning, its biggest daily percentage gain since Dec. 2, and were last up 3%.

Ganzhou, a city in southern China's Jiangxi province, is home to Minmetals Rare Earth and Ganzhou Rare Earth, the latter directly owned by the city government. Ganzhou is a hub for heavy rare earth smelting and separation.

(Reporting by Emily Chow and Hallie Gu; Editing by Stephen Coates)