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China's Wind Power Sector Struggles with Rare Earth Price Hikes

While an increasing number of wind power equipment manufacturers in China have started to adopt direct-drive permanent magnet technology, rare earth minerals, some of the core raw materials used to produce wind turbines, are becoming a significant barrier to their development.

The recent price surges have forced many industry players to halt production or create a complete industry chain by expanding into the upstream sector. The price hikes are expected to intensify the already fierce competition in the sector, causing those who lack capital and expertise to be squeezed out altogether, according to an industry insider.

Rare Earth Price Skyrockets

China's rare earth prices have risen significantly since July 2010, exceeding 200 percent since the beginning of this year, with some categories reaching 600 to 1,000 percent.

One of the key reasons for the price explosion is the Chinese government’s introduction of a levy on rare earth resources as of April 1 of this year, said Zhou Jianxiong, Chairman of Hunan province-based Xiangtan Electric Manufacturing. In addition, on May 19th the State Council of China released a document outlining the council’s viewpoint on the sustainability and development of the rare earth sector in a move to regulate the market.

According to a report from Guolian Securities, the price of rare earth is expected to continue the upward trend in the second half of this year.

A Bubble Emerges

Following five successive years of impressive growth, China's wind power sector saw its growth rate decline to 37 percent in 2010. With nearly 100 wind turbine manufacturers in China, total production capacity for 2011 is expected to reach 29 GW, far exceeding the actual demand of 15 to 18 GW. This trend is evidence that the rapid development of the wind power market has led to excessive competition and accelerated formation of a bubble. 

Manufacturers Address the Challenge

In response to the soaring raw material costs, Xiangtan Electric Manufacturing plans to adopt advanced processes to reduce its reliance on NdFeB (neodymium magnet), said Zhou Jianxiong. 

"We are currently evaluating the impact of the rare earth price increases on our company. The Chinese government has become aware of the huge pressure facing the high-tech sector, and is promising to take action to stabilize the market price. Meanwhile, our R&D team is committed to reducing process costs while improving the performance of our products," said Yao Yu, director of public relations at Xinjiang Goldwind Science & Technology

Furthermore, gaining direct access to upstream resources is also proving to be a solution to tackle rising costs.

Privately-held Mingyang Wind Power, for example, recently signed a framework agreement with the government of Ganzhou, Jiangxi province, one of China's major rare earth producers. According to the agreement, Ganzhou’s municipal government will first provide Mingyang with rare earth resources and grant exclusive rights to develop wind farms in the city. 

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