China denies rare earth export quota report

BEIJING Wed Oct 20, 2010 9:59am EDT

Laborers work at the site of a rare earth metals mine in Nancheng county, Jiangxi province, October 20, 2010. REUTERS/Stringer

Laborers work at the site of a rare earth metals mine in Nancheng county, Jiangxi province, October 20, 2010.

Credit: Reuters/Stringer

BEIJING (Reuters) - China on Wednesday denied a report that the government plans to slash export quotas of rare earth metals next year, seeking to ease international jitters about China's stranglehold on supplies.

Any cut in Chinese exports could rattle firms which use the

metals to make parts for vehicles, computers and cell phones, missiles and new energy technology.

A spokesman for China's Commerce Ministry, Shen Danyang, told Reuters that a report in the China Daily on Tuesday that export quotas would be cut by 30 percent in 2011 were "unfounded."

"Reports in certain media that China will continue reducing rare earth export quotas next year are entirely groundless and this is purely a mistaken report," the ministry said in a statement later.

"China will keep supplying rare earths to the world, but will also continue imposing restrictions on the exploitation, production and exports of rare earths to protect these depletable resources," said the statement, adding that any limits would abide by global trade rules.

The denials may do little to reassure companies and foreign governments nervous about supplies after the New York Times separately reported that China had blocked some shipments to the United States and Europe. U.S. officials said they were checking the report.

China is likely to remain the leading producer of rare earth metals for years to come, with prices to double next year, European producer AS Silmet of Estonia said on Monday.

UNTAPPED RESERVES

More than 90 percent of global production of rare earths comes from China, although other countries have big untapped reserves.

Japan's Kyodo news agency reported that an unnamed diplomatic source in Beijing said custom clearances of rare earth shipments to the United States and Europe were being held up by tighter inspections. The report did not mention any outright embargo.

The slowdown in shipments may reflect a sharp drop in export quotas, which has left over-committed traders scrambling to cover orders placed in the first half of the year, analysts said.

"It's just that there aren't enough quotas, after the second-half cuts. Some companies signed too many orders in the first half, not realizing the quotas would be cut back," said Mary Zhang, rare earths analyst for Asian Metals in Beijing.

"There are no country-specific cuts. I think the reports show that Japan and the other countries are coordinating action to pressure China to loosen its export policy, because it's true supplies are very tight."

Reports that China had halted shipments of rare earths to Japan during a sea territory dispute has raised the specter that Beijing could use its dominance of supplies as a political lever.

A Japanese trading house official told Reuters that no rare earth cargoes bound for Japan had cleared Chinese customs since September 21, but added the company has not confirmed the current status of shipments to the United States and Europe.

The China Daily cited an unnamed commerce ministry official as saying Beijing would reduce export quotas to protect the country's rare earth resources from over-exploitation.

NO COMPLETE BAN

China's reserves of rare earth dropped by 37 percent between 1996-2003 and might run dry within 15 to 20 years if the current rate of production is maintained, the Ministry of Commerce said last week.

Premier Wen Jiabao said earlier this month that China's measures to control rare earths exports were geared to "sustainable" exploitation of the minerals and pledged not to impose a complete ban on exports.

China has been steadily reducing export quotas since 2005 for rare earth elements, which consist of 17 metals.

Just three months ago, Beijing said it was slashing export quotas for the metals by 72 percent for the second half of 2010 to 7,976 tonnes, compared to 28,417 tonnes a year ago. Total quotas for 2010 were about 40 percent below 2009 levels.

The People's Daily, in an editorial published on Monday, said it was unrealistic to expect China to continue to meet 90 percent of global rare earth demand when it holds only 30 percent of total reserves.

The Chinese Commerce Ministry said export quotas for 2011 would be reflect "rare earth output, domestic and foreign demand and the needs of sustainable development."

Japan last month accused China of halting shipments amid a political dispute, sparking allegations that Beijing was using its monopoly over the resources as a political tool.

(Additional reporting by Huang Yan and Ben Blanchard in Beijing; Samuel Shen and Farah Master in Shanghai; Kiyoshi Takenaka and Yuko Inoue in Tokyo; Editing by David Fox)

(samuel.shen@thomsonreuters.com; +86 21 6104 1789; Reuters Messaging: samuel.shen.thomsonreuters.com@reuters.net)

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