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  • China's rare earth export quotas ruffle political feathers as prices soar 0 comments
    Oct 21, 2010 7:45 AM | about stocks: RAREF, REE, RRLMF, AVLIQ, LYSCF

    The restrictions imposed by China on its rare earth exports are continuing to drive prices higher for the elements used in the manufacture of disk drives, wind turbines and smart bombs, and are also becoming a political issue for US lawmakers and officials in Japan and Germany.

    A sevenfold price rise for cerium oxide, which is used for polishing semiconductors, and a doubling of other rare-earth elements has occured in the last six months according to Metal-Pages in London.

    President Barack Obama's spokesman said the National Security Council staff is looking into reports that China is blocking shipments. However, China says the quota reductions are needed to shut polluting mines and meet domestic demand.

    China is expected to tighten export controls on rare earths next year, giving it power over the $US1.2 billion ($1.3 billion) market.

    China has begun to use that market power recently, according to Japanese officials. They said supplies of the elements to Japan were cut after a Chinese fishing trawler collided with two Coast Guard boats in the East China Sea near islands claimed by both countries.

    Japan, which buys some 56 percent of China's rare earth minerals, is already feeling the pinch. A reduction in cerium, essential for making flat-panel televisions and hard-drives, has given manufacturers there cause for concern as they have noticed a 16-fold increase in the price of the mineral over the past decade.

    This week, Chinese customs officials began stopping shipments to the rest of the world, according to two people involved in the industry who spoke on the condition of anonymity because of concern about Chinese reaction.

    Chinese customs officials are delaying shipments by requiring shippers to open containers of the elements for chemical analysis, one of the people said.

    What's not clear is whether China has imposed new restrictions or exporters have simply filled the quotas that China imposed in July.

    Prices for cerium oxide rose to $US36 a kilogram Oct. 19 from about $US4.70 a kilogram on April 20, according to Metal-Pages. Neodymium, used in magnets, rose to $US92 a kilogram from about $US41 in April and $US46.50 in July, the company said.

    About 37 per cent of worldwide rare-earth sales in 2008 were for magnets used in products such as hard-disk drives, hybrid- electric vehicles and guided missiles, according to Industrial Minerals Co. of Australia. An additional 31 per cent went into phosphors, used in making energy-efficient lights.

    China set a production cap of 89,200 metric tons this year, while reducing its export quota to 22,300 tons, according to estimates by Guosen Securities Co. It announced that quota in July, and prices have climbed since then.

    The US rare-earth mine in Mountain Pass, California, shut down most operations in 2002. Molycorp Inc. (ETR:9MO), which owns the mine, plans to reopen it, and Chief Executive  Officer Mark Smith said this week that it may double the planned capacity to 40,000 metric tons.

    Glencore International AG, the world's biggest commodities trader, also said this week that it would try to restart the Pea Ridge rare-earth mine in Missouri.

    Countries such as the US, Canada and Australia hold unexploited deposits of rare earths. While most  of the minerals are currently obtained from China, there is no scarcity of rare- earth minerals in the medium to long term.

    In Germany, the government yesterday adopted a strategy to secure supply of raw materials including rare earths in eastern Europe and Central Asia to counter expanding Chinese interest in rare minerals.

    By 2015, the Chinese government wants to reduce the number of rare-earth oxide producers to 20 from 90, according to Li Zhong, deputy general manager of Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co.

    Traders are now waiting to learn what quotas China may impose on exports for 2011. A story published on the China Daily online website on 19 October stated that China will further reduce quotas for rare earth exports by 30 percent next year to protect the precious metals from over-exploitation.

    An official from the Chinese Ministry of Commerce said that the country is now facing the possibility that reserves of medium and heavy rare earths might run dry within 15 to 20 years if the current rate of production is maintained.



    Disclosure: no position
    Stocks: RAREF, REE, RRLMF, AVLIQ, LYSCF
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