* China's top 6 miners to produce 10 pct less in 2015
* Illegal mining estimated at a quarter of total output
* Prices seen stabilising after heavy losses since 2011
By Eric Onstad
LONDON, Nov 6 An output cut by six top
rare-earth producers in China has spurred a modest rise in
prices and is helping to steady a hard-hit market, but a
continued glut of illegal output will likely cap any rebound.
Prices of 17 rare-earth elements used in high-tech sectors
such as electronics, defence and renewable energy have been
sliding over the past four years, hit by heavy oversupply.
Last month, the country's top producer China Northern Rare
Earth High Tech Corp and five other main suppliers
said that due to weak prices, they would produce around 10
percent less than their 2015 government-set output targets.
China is the world's dominant producer of rare earths,
accounting for 90 percent of global supplies.
"The cuts caused a short-term bump (in prices), but the real
problem is that it's only a small drop in the ocean," said David
Merriman, senior analyst at consultancy Roskill Information
Services in London.
"The amount of illegal production that is still being
produced is strong enough to keep downward pressure on pricing."
An index compiled by the Association of China Rare Earth
Industry, based on the value of all rare earths produced in
China, has increased by about 12 percent over the last four to
six weeks, but has levelled off. (bit.ly/1LUB2d2)
The rare earths market is still recovering from a boom in
2010-2011 that unleashed a glut of supply and a subsequent
collapse in prices, which are down around a fifth this year.
The weak prices spurred Molycorp Inc, the only
U.S. supplier of rare earths, to file for bankruptcy protection
earlier this year and suspend production at its flagship
Mountain Pass facility in California.
STABLE PRICES EXPECTED
The Chinese government has been struggling to dismantle an
illegal supply chain for several years that includes many
small-scale mines that often result in environmental damage.
The government hoped that the country's small miners and
processors could be consolidated into the six top state-owned
"The decision to reduce output is encouraging and a sign
that consolidation of China's industry into six large groups
will help encourage production discipline," said Amsterdam-based
consultant Ryan Castilloux, founding director of Adamas
"That said - it will take more than just a 10 percent
reduction in 2015 to remedy the structural imbalance in China's
Roskill estimates that illegal Chinese production this year
will be 45,000 tonnes of rare earth oxides, accounting for about
a quarter of global output of 172,000 tonnes, with black market
output falling a couple thousand tonnes next year.
"I think the government has accepted the fact that it will
take a long time to control (the black market) and that it's not
just a quick fix," Merriman said.
"Things are steadying, however. I think prices will remain
relatively stable throughout the first half of next year."
Jon Hykawy, president of Toronto-based consulting firm
Stormcrow Capital, said production cuts were not the best option
since users outside of China were concerned about volatile
prices and supply security.
"What would alleviate those concerns would be available
long-term contracts at reasonable prices, with some guarantee on
future deliveries owing to the source of supply," he said.
(Reporting by Eric Onstad; Editing by Dale Hudson)