BEIJING May 3 Illegal production and smuggling
still dog China's rare earth industry despite a long campaign to
clean up the sector, contributing to a supply glut that has
depressed global prices, a senior industry official said on
"Problems in the industry that have accumulated over the
long-term have still not been fundamentally resolved," Su Bo,
vice-minister of industry, said in comments published on the
ministry's website (www.miit.gov.cn).
"Unplanned exploitation and production of rare earths has
affected the normal workings of the market, and
illegally-produced rare earth products have reached downstream
consumers through a variety of channels or been smuggled abroad,
leading to a continuous decline in prices," he said.
China, which supplied 97 percent of the world's rare earths,
used in products from computers to wind turbines, launched a
nationwide campaign in 2010 to "rectify" the chaotic and
ill-regulated sector to curb severe environmental damage.
It reduced domestic output and shut hundreds of small and
unlicensed miners, processors and traders, leading to a fourfold
spike in export prices and complaints from buyers in Europe,
Japan and the United States.
The crackdown has strengthened the position of giant
state-backed firms in the industry.
Su said the top 10 rare earth producers, including
Minmetals, Chalco and Baotou Rare Earth,
now control 99 percent of official national output. They also
control 61.5 percent of the country's separation capacity, where
material is separated out into individual rare earth ores.
Rare earth prices hit record levels in 2011 but have since
slumped, largely as a result of the global economic slowdown,
including weaker growth in China, according to Western buyers.
China sold just 16,800 tonnes of rare earths in 2012, lower
than the permitted quota of 24,000 tonnes, Su said.
He gave no indication of the current size of illegal
production, but earlier government estimates have suggested that
as much as 40,000 tonnes of rare earths have reached the
domestic and export market illegally in previous years.
Su said demand was expected to recover, with the supplies of
scarcer heavy rare earths likely to get tighter.
Other countries have ramped up production of rare earths in
response to China's export quotas, including the United States
and Australia, but China remains the dominant producer.
Su added that while China needed to continue to restructure
the sector and prevent oversupply, it should not impose
"excessive controls" over the production of light rare earths
and thereby lose market share.
(Reporting by David Stanway; Editing by Richard Pullin)