When a row erupted between Japan and China last year over disputed islands in the East China Sea, an unexpected consequence was a big jump in the price of rare earth elements.
Q&A: Rare earth metals Rising tensions between China and Japan over an embargo may spell good news for miners looking to fund projects outside of China.
So what are rare earth metals?Well there are 17 of them. They are" Lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, lutetium, scandium, yttrium.
What are they used for? Here is a snap shot: rechargeable batteries for electric and hybrid cars, advanced ceramics, electric car motors, computers, DVD players, and wind turbines. And there is more. Rare earths can be found in televisions, lighting, lasers, fiber optics, glass polishing, superconductors, and military hardware.
Is there an iPhone and iPad connection here? Naturally. Rare earths make for smaller, lighter batteries and motors. The drive to miniaturization was first used by the Sony Walkman personal cassette tape player. Rare earths are now key to making handheld gadgets such as Apple's iPhone and Research In Motion's BlackBerry.
Will demand continue to grow? Again, yes. The demand is set to grow by a minimum of 8 per cent a year. Electric vehicle demand is set to grow by an average of 790 per cent in the next five years.
Source: Reuters
The global supply of these commodities, required for a host of high-tech products including hybrid cars and smartphones, is largely controlled by China, while Japan is one of the world's leading consumers.
China is able to manage the global market because it is responsible for 97 per cent of the world's supply of rare earth elements, which are substances that can be extremely difficult and dangerous to mine. They consist of 17 metals in various forms.
Beijing's decision to halt exports of these elements to Japan after a dispute over Tokyo's arrest of a Chinese fisherman, whose vessel had collided with two Japanese coastguard boats, was accompanied by price rises that saw the cost of some rare earth elements increase sixfold.
The rise in prices has also been blamed on tighter export quotas imposed by China in the second half of last year, leading to concerns in Germany, the US and other countries, as well as Japan.
The situation is likely to remain serious, with reports indicating China has cut its export quotas for this year by as much as 35 per cent, citing its need to protect the environment, although observers believe the government's wish to protect domestic manufacturers is also a factor.
Only this week Taipei officials held talks with Beijing to try to ensure Taiwan can count on the supplies its industry needs.
Despite the apparent stranglehold China has on supply, countries that use rare earth elements in the largest quantities do have cause for optimism, as there are several factors that mean Beijing's grip on the market will, in time, lessen.
Michael Komesaroff, who has decades of experience in the industry and is now the principal of Urandaline Investments in Australia, says "China's dominance is not geologically predetermined".
Speaking on a visit this week to Beijing, Mr Komesaroff says there are "plenty of rare earths around in the world", and with prices having increased heavily, projects to mine them that were once deemed uneconomic will now be worth pursuing. That means in future the supply base is likely to become more diverse and in years to come, the proportion of known rare earth deposits held by China will decrease.
Also, as prices have risen so dramatically, manufacturers are finding ways to be more careful about how they use rare earth elements, a phenomenon known as "thrifting".
Just as aluminium cans became thinner as the price of the metal soared, so companies will learn to make better use of what rare earths are available.
Another strategy is finding alternatives and the Japanese, for example, are looking at developing synthetic rare earths, although Mr Komesaroff concedes "they've got a way to go".
So, with greater supplies in other parts of the world, and with manufacturers employing imaginative ways to get around or reduce their requirements for rare earth elements, China will in a few years time no longer be able to call the shots.
business@thenational.ae
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
What sanctions would be reimposed?
Under ‘snapback’, measures imposed on Iran by the UN Security Council in six resolutions would be restored, including:
- An arms embargo
- A ban on uranium enrichment and reprocessing
- A ban on launches and other activities with ballistic missiles capable of delivering nuclear weapons, as well as ballistic missile technology transfer and technical assistance
- A targeted global asset freeze and travel ban on Iranian individuals and entities
- Authorisation for countries to inspect Iran Air Cargo and Islamic Republic of Iran Shipping Lines cargoes for banned goods
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Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
