China companies get green light for rare earth exchange-report

BEIJING Thu May 26, 2011 8:29pm EDT

BEIJING May 27 (Reuters) - China's biggest rare earth producer, Baotou Steel Rare Earth (Group) Hi Tech , has won local government approval to start an exchange to trade the increasingly lucrative metals used in many high-tech goods, state media reported on Friday.

The regional government of Inner Mongolia, where the Shanghai-listed company's mining and processing operations are based, gave the "green light to the establishment of a rare earth exchange in the city of Baotou," the Xinhua news agency reported, citing city officials and an earlier statement from the Baotou Steel Rare Earth (Group) Hi Tech.

That company and another, Inner Mongolia Hi-Tech Holding Co. Ltd., will run the exchange, said the report, which did not say when the bourse would open or whether the central government has also given its nod.

The report called the decision a "breakthrough" in Chinese companies' efforts to establish a unified national exchange that will "regularise market flows of rare earths" and give them greater leverage over foreign buyers.

But the exchange would confine itself to relatively modest trading in at least some of the 17 elements categorised as rare earths, the report suggested.

"The government required that the exchange should not deal in futures trading," it said.

"Sources close to the matter say the exchange can only deal with spot transactions of rare earth."

The exchange will nonetheless help China "play its influence over rare earth pricing on the global market," said Xinhua, citing industry observers.

China controls about 97 percent of rare earth output, and has alarmed customers in Japan, the United States and Europe by clamping down on production and sale of rare earth elements, citing a need to clean up highly polluting production processes and to stop illegal exports.

The crackdown cut exports by 62 percent in the first four months of 2011 compared with a year earlier, and has been a windfall for rare earth miners and prospectors outside China, such as U.S. firm Molycorp Inc .

China's exports of rare earths fell by more than half in April from a year previously, a Reuters breakdown of detailed Customs data showed this week, despite headline official data that indicated a rise of 46 percent. [ID:nL3E7GN1PS]

This month, Beijing said it will crack down on smuggling of rare earths and impose quotas for exports of rare earth alloy products as part of its campaign to strengthen control over the sector. [ID:nL4E7GJ1Y4] (Reporting by Chris Buckley; Editing by Ken Wills)

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