China is generally accepted to account for around 95% of the
worlds total rare earth supplies. Although it claims to
have no more than 23% of total global reserves of the minerals,
2011 estimates from the US Geological Survey (USGS) suggested
that the figure is nearer 50%.
|Stonewalling: China continues to
evade questions from international
community over its rare earths export
According to the USGS, Chinas
reserve and resource system divides the countrys minerals
into reserves and resources. Reserves are then divided into
proved extractable reserves, probable extractable reserves and
Resources are divided into
measured, indicated, and inferred categories.
As the USGS acknowledges,
Chinas method of classification makes comparisons with
different reserve systems difficult, and estimates are always
approximate. It has concluded, however, that China hosted
around 55m tonnes rare earth oxides in 2011.
By claiming that it has fewer rare
earths than international estimates suggest, China has argued
that its resources are fast depleting and that its industry
needs to drastically reduce output and reform its mining
practices if it is to be sustainable.
After more than 50 years of
excessive mining, Chinas rare earths reserves have kept
declining and the years of guaranteed rare earths supply have
been reducing, the Information Office of the State
Council, Chinas cabinet, said in its white paper on the
rare earths industry published this June.
The government blamed excessive
exploitation and illegal mining for the decline in its national
resources, and said that the devastation caused by pollution
from rare earths mining activity had to be addressed
China is therefore rigorously
reining back both its rare earths production and exports, and
has urged other countries with reserves to boost output in
order to meet the rapidly expanding number of applications
requiring the minerals.
Tight export controls pushed up
prices to a peak in 2011, persuading miners in countries such
as the US, Canada and India to resume production after shutting
mines decades ago.
|Rare Earth Minerals
|Cerium oxide, min 99%, FOB China,
|Dysprosium oxide, min 99%, FOB China, $/kg
|Europium oxide, min 99%, FOB China,
|Lanthanum oxide, min 99%, FOB China, $/kg
|Neodymium oxide, min 99%, FOB
China, $/kg bulk
|Praseodymium oxide, min 99%, FOB China, $/kg
|Samarium oxide, min 99%, FOB China,
|Domestic and export prices for Chinese
cerium oxide and
samarian oxide were particularily hard-hi during
and October according to IM's pricing
|Source IM Prices Database
Among the most prominent features
of Chinas rare earths policy has been the
governments continuing efforts to reduce the pool of
domestic rare earths producers.
Chinas Ministry of Industry
and Information Technology (MIIT) imposed minimum production
thresholds for domestic companies in early August, effectively
removing the bottom tier of producers along with 20% of
Chinas rare earths capacity.
Dan McGroarty, American Resource
Policy Network principal, told IM shortly
after the announcement that such unexpected policy
announcements by China were far more disruptive to the rare
earths market than trade restrictions.
Nobody saw [it] coming,
McGroarty said. Variables like taking 20% of capacity out
of the market will have far more of an effect on the industry
than any [change in] trading activity.
Then, in mid-September,
Chinas Ministry of Land and Resources (MLR) announced it
was cutting the number of mining permits for rare earths
companies by more than 40%, from 113 to 67.
The allocated permits were placed
primarily in the hands of companies which were large enough not
to have an incentive to cheat export quotas by smuggling the
minerals out of China, Jon Hykawy, Byron Capital Markets
Cracking down on smuggling has been
a priority with Chinas industry regulators, who are
seeking to tally international import receipts with
Chinas officially sanctioned rare earths output.
In September, IM
reported that talks were being held between five Chinese
government departments - the General Administration of Customs,
State Administration of Taxation, Ministry of Commerce, MIIT,
and the MLR - over how to tackle the problem of smuggling.
Six weeks later in mid-October
reports from local Chinese media exposed the scale of
Chinas rare earths black market.
Companies and factories in Inner
Mongolia that had been closed down over the summer had shifted
their operations to Chinas western provinces, including
Ningxia and Gansu, where industry supervision is less strict,
Sources told Economic
Information Daily that rare earths companies were using
false descriptions and smuggling to continue manufacturing and
selling rare earths products outside the governments
strict quota system.
Following the reports, Chinas
MIIT posted a statement on its website saying that it would
move to close down the illegal operations and prosecute those
Economies such as the US, the
European Union (EU) and Japan which are reliant on imports of
Chinese rare earths to support technology applications from
weapons to wind turbines have watched anxiously as shipments of
the minerals continue to dwindle.
China exported just 18,600 tonnes
of rare earths in 2011, down 58% from 2010, despite the
official export quota for the year standing in excess of 30,000
tonnes, China Customs data shows.
A second tranche of export quotas
for 2012 was announced in late August by the Chinese Ministry
of Commerce (MOFCOM), raising the overall yearly quota for the
first time since 2005 by 6% to 31,965 tonnes.
But any hopes that this move would
increase global availability of the minerals were short-lived
when it became clear that China would almost certainly fail to
meet its export quota for a second consecutive year.
IM reported in
September that Chinese rare earths exports plunged 32%
year-on-year (y-o-y) for the first eight months of 2012. The
export value of the minerals fell by 21% to $2.7bn y-o-y during
that period as lower volumes were compounded by falling
As Mark Smith, CEO of US rare
earths producer Molycorp Inc. said after the increase was
announced, the export quotas are not all that meaningful
The US, EU and Japan are still
waiting for a ruling from the World Trade Organization (WTO) on
whether Chinas export restrictions violate international
Chinas MOFCOM confirmed via a
statement on its website in August that it intended to
properly deal with the request [for dispute resolution]
in accordance with the WTOs settlement procedures,
and insisted that its export policies were in-line with trading
However, industry experts widely
expect China to circumvent any ruling that their policies
breach WTO rules by arguing that the restrictions are aimed at
resource conservation and environmental management.
China consumed about 83,000 tonnes
of rare earths in 2011, against a global consumption total of
110,000 tonnes, according to Liu Yinan, vice-chairman of the
China Chamber of Commerce of Metals, Minerals and Chemicals
Importers and Exporters.
As the largest consumer of the
minerals by a huge margin, China is relying on foreign
companies developing rare earth deposits in other parts of the
world to feed the countrys internal demand as it slashes
Stockpiling has been mooted as one
option to ensure supply security until this happens.
According to local press reports,
China is considering creating a strategic supply reserve of
rare earths to be used in high-tech manufacturing once that
technology is in place.
As the government pointed out when
it released its policy paper in June, shipping low-end ore
abroad has meant paying all the environmental costs associated
with the highly polluting business of rare earths mining, but
gaining none of the rewards from manufacturing the high-value
products the minerals are used for.
A recent article by the state
Xinhua news service said that the government plans to
spend Chinese renminbi (Rmb) 10bn ($1.6bn) on stockpiling light
rare earths (LREEs).
No official announcement has been
made to confirm this, although the local government of Jiangxi
province announced on 8 October that it plans to purchase and
store strategic minerals - including rare earths - produced by
Baotou rare earths exchange
yet to begin trading
China launched a rare earths
trading platform in Baotou, northern China, on 7 August led by
Inner Mongolia Baotou Steel Rare Earth Hi-Tech in association
with nine of Chinas largest rare earths producers.
Despite three years of preparation,
the platform was inaugurated without definitive trading rules
and procedures in place, and it is expected to be some time
before the exchange starts to operate.
The aim of the platform was to
bring price stability and transparency to Chinas rare
earths market, according to Chinese officials.
At a conference accompanying the
launch, industry commentators warned that the platform alone
would not be enough to solve Chinas rare earths problems
and questioned whether the trading mechanism would succeed in
Disordered and illegal mining
must be controlled and regulated by the government if rare
earths prices are to be fairly determined by the market,
Tong Maofu a representative of Dali Langda Fluorescent
Materials Co., told the conference.
Other criticisms hinted at the
potential monopolisation of the industry within China.
Wang Zhongshan, vice chairman of
the Nanjing Rare Earth Application Research Association, was
critical of the platforms basis on private
This exchange will be
meaningful only if it is established, managed and run by the
state, Wang said, adding that the platform was irrelevant
in an industry that was already actively trading rare
Ganzhou trading platform
Despite being hailed at
Chinas first exchange for trading rare earths, the Baotou
platform has been quietly preceded by a separate trading
mechanism - the Jiangxi Ganzhou Rare Metals Exchange -
established in Ganzhou, southern China, in November 2011.
The first deal was made via the
Ganzhou platform on 31 December 2011 between Dayu County
Jincheng Tungsten Industry Co. Ltd and Mazzoni Chapter Tungsten
Co. Ltd for a rare earths contract worth Rmb 42m ($6.7m).
However, no trading activity has
been subsequently executed via the Ganzhou exchange, according
to the Chinese news service, Money163.com.
The exchange regulators are waiting
for transaction fees to be determined before further trading
can take place, the news service said, with one source reported
as saying that the deal in December was forced by
the Ganzhou local government, in order to make the platform
A spokesman from Ganzhou Rare Earth
Mining Co. Ltd suggested that the Baotou trading platform had
been launched hastily and before final details had been set in
order to seize the initiative while the Ganzhou exchange lay
Neither platform is currently
operational and companies cannot join the exchange until
However, some rare earths producers
are still positive about the prospect of having a trading
mechanism that will help unify the industry and contribute
towards more stable pricing, despite the protracted teething
A formal trading mechanism
will establish a reasonable pricing system for rare earths, and
avoid the fluctuations of previous years, Ling Dong Yu,
secretary general of the Chinese Society of Rare Earths, told
We are looking forward to the
day when it is operational, he added.
IM reported in
August that Chinese rare earths producers were suffering from
weakening demand and falling prices, both domestically and
The impact of the global economic
slowdown on manufacturing, coupled with a concerted effort by
some rare earths consumers to engineer out of their dependency
on the minerals in favour of cheaper, more widely available
materials, have taken their toll on the Chinese industry.
Baotou Steel Rare Earth,
Chinas largest rare earths company, saw its profits fall
by 20% for the second quarter of 2012, while Xiamen Tungsten
Company reported a decline of 29% y-o-y for the first six
months of the year.
Guangdong Rising Nonferrous Metals
Group said its profits had fallen by more than 90% during H1,
and the situation is believed to be even worse for small
producers, many of whom have been forced to close their
Both high and low-value rare earth
products have suffered from falling demand. At the high end,
the neodymium magnet (NdFeB) market, the largest domestic
consumer of rare earths, saw many manufacturers and products
drop out of circulation as a result of the price spike in
At the low end, the polishing
powders market, a major consumer of cerium, has been faced with
low prices, soft demand and excess production. Chinese sources
reported that around 50% of production lines for rare earth
polishing powders in Baotou have closed since 2011.
Tensions with Japan over
China became embroiled in a
historic dispute with Japan in August over seabed mineral
rights annexed to a small group of islands in the East China
Located off the coast of Taiwan,
the five islands -named Senkaku in Japan, Diaoyu in China and
Tiaoyutai in Taiwan, each of which have claimed ownership of
the territory - are uninhabited and cover a total land area of
However, under the Law of the Sea
Treatys Exclusive Economic Zone (EEZ) rules, possession
of the islands gives the owner rights to 40,000km² of the
East China Sea, including the seabed beneath, which is believed
to contain extensive reserves of valuable minerals.
In 2010, the Japanese Coastguard
arrested the crew of a Chinese trawler which was sailing in the
islands territorial waters. This prompted China to
retaliate by placing a temporary ban on rare earths exports to
Tensions flared up again in
mid-August this year when Japan arrested 14 Chinese activists
for planting a Chinese flag on the disputed islands. The
Japanese government has subsequently announced plans to buy the
islands, which had previously been held by private Japanese
Neither country currently possesses
the technology to extract rare earths from the seabed. However,
in the same month as the East China Sea quarrel heated up
again, both Japans JOGMEC - Japan Oil, Gas and Metals
National Corporation - and Chinas Ocean Mineral Resources
Research and Development Association (COMRA) filed applications
with the International Seabed Authority for licences to conduct
seabed exploration for rare earths, among other minerals.
A major Japanese trading house
confirmed at the end of September that imports have not yet
been affected by the dispute, according to a report by
Japans Asahi Shimbun.
Industry observers, including the
Hong Kong Economic Journal, have speculated, however,
that China could reinstate its ban on rare earths exports to
Japan if the situation escalates.
In October, Senior Chinese
officials pulled out of annual meetings International Monetary
Fund (IMF) and World Bank in Tokyo, a decision which has been
taken as a sign that tension over the issue is mounting.
While the East China Sea dispute
has once again shifted attention to Japanese
manufacturings reliance on Chinese rare earths, Japan is
making concerted efforts to decrease its dependence on the
Toyota announced earlier this year
that it had developed a method to manufacture hybrid and
electric vehicles without using the minerals.
Meanwhile, a team of researchers
from battery and electronics manufacturer Toda Kogyo Corp. has
confirmed that it has succeeded in creating a rare earths-free
Japanese auto manufacturer Honda
and electronics giant Panasonic also recently announced that
they were developing rare earths-recycling processes for
extracting minerals from nickel-metal hydride (NiMH) batteries
Outside Japan, US-headquartered
Ford Motor Company and computer giant Hewlett Packard are both
working to cut the number of rare earths used in their
Chinese domestic rare earths prices
have been falling since July 2011, apart from some minor
increases in September 2011 and between March and April this
year, local producers have reported.
At the end of September, the
Chinese online news service Business Sohu reported
that the minerals were trading at a 12-month low.
confirmed that prices were continuing to fall, with dysprosium
oxide and samarium oxide being among the heaviest fallers in
September and October.
The price of dysprosium oxide has
fallen 72% since last years peak, according to some
The market is cold, demand
from downstream is soft and trade is less, one source
Another source said that domestic
prices for samarium oxide were around $53/kg in October, some
$17/kg lower than IMs lowest range for
Export prices are also widely
reported to be falling, although precise data from Chinese
exporters is not readily available. Tracking export prices for
Chinese rare earths is complex because the export permit fee is
different for each supplier, and export pricing information is
closely guarded by the Chinese government.
Chinese government officials have
conceded that Chinas dominance as a producer of rare
earths will be undermined as a result of changes in the global
There will be a big
adjustment in the rare earths market price: changes in the
supply pattern present a challenge for businesses and the cost
of production will become a major competitive factor,
Zhang Zhong, Baotou Steel Rare Earth president, told
Chinas Economic Information Daily in August.
The impact of international rare
earths developments would result in a big reshuffle
of Chinas domestic market, as falling demand and sliding
prices would impact negatively on the profits of Chinese
producers, he added.
Several rare earths projects
outside China are reputed to have far richer resources than
those found in Chinese mines, giving international producers
the advantage of being able to work at higher cut-off
Yet, despite Chinas
acceptance that it may lose its monopoly over rare earths
production in the near future, Chinas appetite for the
minerals is only expected to increase, according to Liu Yinan
of the China Chamber of Commerce of Metals.
Li Zhong, vice-president of Baotou
Steel Rare Earth has predicted that domestic consumption of
rare earths will grow at least 10% per year in the coming few
And with Beijing capping production, this growth can only be
met by a further export cut or increased imports.