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UPDATE 3-China to further cut rare earth export quotas
October 19, 2010 / 6:50 AM / 7 years ago

UPDATE 3-China to further cut rare earth export quotas

* China plans rare earths export cut by 30 pct in 2011-media

* Rare earth reserves may run dry within 15-20 years

* China seen paving way to stop rare earths exports-analysts (Adds comments from Japan foreign minister)

By Fayen Wong and Tom Miles

SHANGHAI/BEIJING, Oct 19 (Reuters) - China plans to further cut export quotas for rare earth metals next year, local media reported on Tuesday, putting further pressure on importing nations to swiftly find new sources of supply.

China, which accounts for more than 90 percent of the world’s production of rare earths, plans to cut export quotas by up to 30 percent in 2011, the China Daily reported on Tuesday, citing an unnamed official with the Ministry of Commerce.

The Ministry of Commerce could not be reached for comment.

Analysts say China has huge amounts of economically viable reserves that are unlikely to be depleted soon, but reckon Beijing’s recent protectionist stance on rare earths exports is a sign that it could soon cut exports to a negligible amount in a bid to reserve supplies for domestic consumption.

“It does look like they are genuinely worried about supplies and don’t care what the international price is. The message they are sending is that they want to see other sources of supply being developed,” said Trent Allen, a metals analyst in Resource Capital Research in Sydney.

“Chinese officials have also talked about building a rare earths reserve and all the recent comments suggest that they may be planning to stop exports in the future.”

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. [ID:nTOE69606G][ID:nBJA002310]

“We may not see a complete ban because that could bring a new set of trade problems, but they could cut shipments to a very small number,” said a second analyst who declined to be identified. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For a factbox on rare earth elements: [ID:nN09251080]

For factbox on Japan-China frictions: [ID:nSGE68N028]

Insider on rare earths: link.reuters.com/juz58p ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

A Chinese Foreign Ministry spokesman declined to comment whether export quotas would be reduced again next year, but reiterated that recent cuts were aimed at protecting the environment.

“Every country has the right to use its own resources in a reasonable way. China has been providing low priced rare earth to the world for a long time. China recently put some necessary restrictions on the rare earth industry based on domestic regulations,” the spokesman, Ma Zhaoxu, told a regular news conference on Tuesday.

China’s reserves of rare earth have 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 on Oct. 16.

Any substantial cuts to heavy rare earths exports, which are scarce and needed for a number of sophisticated electronics manufacturing processes, would hit high-tech firms and automakers.

Analysts said a move by China to further cut its rare earth supplies could also prompt an international backlash from key importing nations, such as the United States, Japan and Korea, who could complain to the World Trade Organisation.

China’s recent move to halt shipments of rare earths to Japan amid a political dispute has also raised the spectre that Beijing could use its monopoly over those resources as a political tool, prompting Japan to scramble for alternative supplies and set up a reserve. [ID:nSGE68S0L4][ID:nTOE690034]

Japanese Foreign Minister Seiji Maehara told a seminar on Tuesday that one of the main pillars of Japan’s foreign policy is to diversify supply sources of food, energy and natural resources.

“It is not good to rely on one country for natural resources, energy or food. We need diplomacy that helps diversify supply sources so that we have stable supplies even in the case of an emergency.”

The Japanese government has come up with a plan to spend a total of 100 billion yen ($1.2 billion) to develop new rare earth mines abroad and to recycle the materials at at home, while supporting companies being exposed to the risk of volatility in their prices.

FALLING EXPORTS

China has been steadily reducing export quotas since 2005 for rare earth elements, which consist of 17 metals that are the life blood of green technologies such as hybrid cars and wind turbines as well as mobile phones and missile guidance systems.

Just three months ago, Beijing said it was slashing its rare earths export quotas by 72 percent for the second half of 2010 to 7,976 tonnes, compared to 28,417 tonnes a year ago.

The dramatic squeeze in supply has prompted an average 300 percent spike in rare earths prices between January and August this year, with price increases for each individual metal ranging from 22 percent to as much as 720 percent, Nomura Securities’ chief strategist Sean Darby said in a recent report.

Companies that have latched on to the opportunity presented by a looming supply shortage in some of the rare earths metals, such as Australia’s Lynas Corp (LYC.AX) and Molycorp Inc in the United States, have seen their shares surge in recent months.

Shares in Lynas, which have surged 215 percent from a year ago, were up 5.5 percent by midday trade, outperforming a 0.26 percent gain in the broader market .

Currently, only a few facilities process rare earth oxides outside China, accounting for less than 10 percent of the market.

The volume of China’s exports fell for three months running to 2,364 tonnes in August, the last month for which data is available. That month saw a 6.2 percent decline in volumes from August 2009, the first such year-on-year decline in 2010.

But thanks to soaring prices, the value of August’s exports continued to rise, up almost threefold year-on-year and 17 percent up from July 2010, despite a 30 percent fall in volumes. (Additional reporting by Ben Blanchard in Beijing and Risa Maeda in Tokyo; Editing by Michael Urquhart)

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