By Albert Li and Rose Pengelly
On 31 October, China’s Ministry of Commerce
announced export quotas for industrial and agricultural
products for 2017. For the first time since 1994, this list did
not include magnesia.
The unceremonious ditching of restrictions on magnesia
shipments suggests that China’s policy of
controlling raw material exports may at last be loosening. The
country’s government had set an apparently
arbitrary limit of 1.7m tonnes on magnesia exports for 2016,
while exports of talc, which has also been removed from the
quota list, were capped at 750,000 tonnes.
The move is probably related to recent World Trade
Organization (WTO) rulings that China’s
restrictions on fluorspar and rare earths exports contravened
international trade rules, following complaints by the US, EU
and Japan. Quotas on these minerals were lifted last year.
It may also signal recognition by the Chinese government
that the quotas were largely ineffective, given
China’s porous land and sea borders, which
fostered a rampant smuggling industry, and because quotas were
rarely used up through certified exports.
China’s official reason for introducing an
export quota system in the 1990s was to protect domestic
mineral resources, which the government deemed strategically
important, from over-exploitation. Chinese magnesia companies
were invited to bid twice a year to purchase a portion of the
annual export quota. Allocations were nominally made according
to the size, efficiency and performance of the company,
although many suspected that licences were awarded because
certain companies had close links to government.
Every year, it was rumoured that that the system would be
scrapped, mainly because most companies failed to use up the
allocations and because of the legal but exploitative secondary
trade in quotas to other companies, whereby a tonne of quota
could sell for more than a tonne of magnesia. It was possible
for a magnesia company to make significant profit from its
magnesia quota without even breaking ground on a magnesite
There has as yet been no official statement on the apparent
cancellation of magnesia and talc quotas and it remains unclear
what the Chinese government will do next. Some industry
observers believe that China will now move to control
production – a domestic policy which would be outside
the jurisdiction of the WTO – as it did with rare
Even Chinese magnesia companies are unsure how they will be
regulated next year. Some fear that the government may force
consolidation of the industry into a handful of large
companies, which can be more easily monitored by state
The absence of any formal announcement meant that the news
was slow to sink in.
One large magnesia supplier in Dashiqiao said that he was
shocked to hear that the quotas had been cancelled and doubly
surprised to learn about it through IM, rather
than official channels. He welcomed the abandoning of export
controls, however, because he believes his company will now be
able to export fused magnesia (FM), for which he previously did
not have a direct licence, relying instead on re-sold
Industry sources at IM’s
MagMin 2016 conference in Dusseldorf in April said that the fee
for magnesia export quota charged by the Chinese government is
around Chinese renminbi (Rmb) 330/tonne ($48/tonne*). The
recipients of the government quota, which usually purchase
between 40,000 and 50,000 tonnes at a time, can then sell this
on for around Rmb 450/tonne ($65/tonne), a 35% premium.
In theory, such profiteering is no longer possible, which
will please many second tier Chinese magnesia companies.
Others are less positive about the news. Another Dashiqiao
magnesia producer told IM that some of his
international customers cancelled their orders as soon as they
learned that the quota had been lifted, saying that they would
wait until 2017 to see if a surge in exports put downward
pressure on prices.
The producer said that price falls are likely, since there
are a large number of Chinese magnesia companies, but only a
small proportion were allowed to export under the quota system.
The removal of controls will probably lead to fierce
competition, price wars and a flooded market, he said.
It seems that local governments in China were also taken
aback by the central State Council’s decision to
drop the quota. An official from the Liaoning Provincial
Special Resource Protection Office told IM
that he expected national and regional authorities would
shortly pass new regulations to compensate for the removal of
As well as production limits, he said that governments could
levy higher resource taxes on magnesite production in order to
keep a lid on supply. Both of these policies have been
implemented in the rare earths sector after the WTO forced
China to drop export restrictions on these minerals.
"The problem is, rare earth companies are consolidated while
magnesia companies are small, scattered and disordered, which
is difficult to regulate as a whole," the official said.
One trade device that may limit China’s
international magnesia shipments in the near term is the export
Export tariffs are currently set at 5% for caustic calcined
magnesia (CCM) and 10% for both deadburned magnesia (DBM) and
However, even this mechanism may have to be amended or
removed in the future. In July and August this year, the US and
EU respectively filed separate cases with the WTO against
Chinese export duties on several minerals and metals, including
Although WTO cases typically take several months or even
years before a ruling is made, and can then be subject to
appeal, the actions could see tariffs on outbound Chinese
magnesia shipments cancelled as well.
It is difficult to estimate how this would affect the global
magnesia market. Following the cancellation of export quotas
and duties on fluorspar and rare earths last year, the price
and volume of exported Chinese fluorspar barely changed,
whereas rare earths exports surged and prices fell.
According to the China Fluorspar Commission, this difference
was due to the relative unity, legality and better organisation
of the Chinese fluorspar industry compared to the
country’s rare earths sector, which is riven with
illegal mining and trading.
China’s magnesia industry is fiercely
competitive, but seemingly more law abiding than the rare
If China decides to preempt WTO rulings, the magnesia market
could learn as early as December whether or not Chinese export
tariffs are to be amended, since the government announces trade
levies for the year ahead at the end of the month.