October 26, 2010 / 7:00 PM / 9 years ago

RPT-UPDATE 2-No China rare earth embargo to US, EU-Molycorp CEO

(Repeats to additional subscribers)

* Sees reductions in export quotas from China

* Expects to product at half China’s cost

* Shares rally 12 pct (Adds byline, details throughout)

By Paul Eckert

WASHINGTON, Oct 26 (Reuters) - China will reduce its exports of rare earth metals to the United States and Europe, but will not cut them off entirely, the head of the largest Western producer of the minerals said on Tuesday.

“I don’t believe that China is going to completely embargo the United States and the European Union as relates to rare earths,” Molycorp Inc MCP.N Chief Executive Mark Smith told a conference on critical and rare metals in Washington.

“I do believe, however, that we’re going to see reductions in the export quotas coming out of China.”

China, which controls more than 90 percent of the global rare earths trade, last week denied reports it had halted shipments to Japan. [ID:nTOE69J03D]

The reports, however, left other countries wary of similar cutbacks in the metals used in high-tech products — so much so that the White House said President Barack Obama could raise the issue at next month’s G20 summit. [ID:nN26150520]

Rare earths comprise 17 minerals with magnetic, luminescent and other properties that go into solar panels, wind turbines and electric cars. Their price has shot up 600 percent to 700 percent in the past few months, Smith said. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic on rare earth metals r.reuters.com/bam39p Graphic on production and use r.reuters.com/nax47p Insider TV interview link.reuters.com/wek22q Factbox-Rare earth elements [ID:nN09251080] Analysis-Impact of shortages [ID:nSGE69J0BC] EU, US grapple with rare earth crunch [ID:nN26154092] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

In a bid to break into the China-dominated market, Molycorp plans to ramp up its U.S. production of the minerals to 20,000 tonnes a year by the end of 2012, Smith told Reuters Insider Television on Tuesday.

“About one-sixth or so of the market is what we’re looking for,” Smith said, adding that Molycorp plans to break ground on its Mountain Pass, California, mine on Jan. 1, 2011.

Molycorp shares jumped 12 percent on Tuesday to close at $35.18 on the New York Stock Exchange. The shares have more than doubled since Molycorp went public at $14 a share in late July.

With China withdrawing some supplies, Molycorp plans to fill the void and become the world’s low-cost producer, Smith said.

“Our prices should be about 50 percent of what the Chinese are producing at today,” he told Reuters, referring to Molycorp’s lower processing costs.

Smith said export reductions were inevitable as China faces growing domestic demand and looks to expand its own clean energy sector.

“They have no choice, but to continue to reduce the export quota,” he said.

Even if Molycorp helps diversify the world’s sources of rare metals, Smith forecast the price of the minerals would remain high for some time as demand grows and supplies remain tight.

“That is a recipe for a long-term sustainable high pricing,” he said.

Molycorp plans to fund its $511 million expansion project in California partially through an upcoming $150 million debt facility. (Writing by Alina Selyukh; editing by Andre Grenon)

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