September 15, 2011 / 10:42 AM / in 8 years

Rare earth prices to stay high as China extends crackdown

BEIJING (Reuters) - Excess exports from China’s rare earth industry kept prices artificially low for years, and it was now “unrealistic” to expect them to fall back to previous levels as Beijing reins in the sector, a senior industry official said on Thursday.

A villager shovels cast-off tailings of crushed mineral ore that contain rare earth metals in front of a rare earth smelting plant in Xinguang Village, located on the outskirts of the city of Baotou in China's Inner Mongolia Autonomous Region in this October 31, 2010 picture. REUTERS/David Gray

Li Zhong, the vice-general manager of top producer Baotou Steel Rare-Earth Hi-Tech Holding, told a conference organized by Metal Pages that China’s role as the dominant global supplier of rare earths will gradually come to an end as the industry focuses more on the domestic market.

China produces about 95 percent of total global rare earths, giving it a chokehold over the supply of 17 elements used to manufacture catalytic converters, permanent magnets and battery cells for products including wind turbines, cell phones and hybrid cars.

Foreign governments have cried foul after Beijing imposed tougher export restrictions on domestic producers, cutting off supplies and driving up global prices.

This year’s export quota was set at 30,184 tonnes, down about 40 percent in just two years, with annual output also capped at 93,800 tonnes.

Traditionally, China has struggled to impose its will on the sector, where illegal private production and overseas trade has remained rampant. According to figures from the China Rare Earth Society, 2010 output exceeded production quotas by 40 percent.

“That isn’t very likely this year,” Li told Reuters. “This year the government is controlling things very strictly. The scope of the inspections will definitely be stronger this year.”

Currently almost half of China’s total capacity now stands idle as inspection teams scour the country to enforce the quotas and industry consolidation targets, as well as new environmental regulations.


China has maintained that previous production and export levels were not sustainable in the long term, and had a devastating impact on its environment.

Xu Xu, the chairman of the China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters, told the conference that he hoped “other countries would share the burden” of rare earth production after depending on China’s overmined deposits for a decade.

But it is clear the quotas were also designed to encourage foreign consumers of Chinese rare earth to move to China, said Michael Silver, chief executive of American Elements.

“There is roughly a 40 percent difference in the cost of rare earths if you’re buying on an export basis, due to the cost of the quota and the export tax,” he told Reuters. “A company that moves here gets an incredible benefit.”

“Now they are requesting them to make their end-user products in China and requesting them to transfer valuable technology to other companies so they can benefit from that knowledge, particularly in green technology, solar power and the automotive industry,” he said.

European Union trade officials have accused China of double standards, saying China has routinely complained about the “monopoly” status of the global iron ore sector and even sought EU assistance to deal with the unfair pricing policies of the dominant big three suppliers, Vale, BHP Billiton and Rio Tinto.

They said Beijing’s attempts to persuade foreign rare earth consumers to relocate to China was akin to big Chinese steel mills being asked to move to Australia or Brazil.

Few expect the World Trade Organization to be able to resolve the dispute.

“The large structure under which the WTO operates doesn’t give their enforcement capability much teeth — the Chinese have acknowledged that they are aware of that,” said Silver.

Japan, one of China’s biggest customers, is trying to stem the tide, and only relatively low-end polishing and glass sectors have so far made the move to China, said Shigeo Nakamura, president of the Advanced Material Japan Corp.

He added that he was optimistic that the supply shortages orchestrated by Beijing would at least encourage other countries to launch their own supply projects outside China.

“Some of the companies have already transferred their production to China, but at the same time, the government is trying to develop new alternative manufacturing materials and developing new reserves outside China,” he said.

Reporting by David Stanway; Editing by Ken Wills

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