China rare earths: WTO final ruling and new policies

By Antonio Torrisi
Published: Wednesday, 03 September 2014

WTO rejects China’s appeal on export quotas; China to improve downstream applications while Beijing takes action against illegal mining

The World Trade Organization (WTO) rejected China’s appeal over its rare earths export quotas dispute in August, following a ruling released in March 2014, which condemned China’s quotas as violating free trading principles.

The dispute goes back to 2012, when a coalition formed by the US, EU and Japan filed a complaint with the WTO, claiming that the quotas violated international free trading rules.

The coalition protested that the export restraints were set by China to artificially increase world prices for rare earths, while artificially lowering prices for Chinese producers.

In a recent statement, US Representative, Mike Coffman, applauded the WTO’s decision saying: “By applying export quotas, China has consistently attempted to enhance its own manufacturing base at the expense of companies in the US and in the rest of the industrialised world.”

In August, Japan’s Ministry of Economy Trade and Industry said it hoped China’s exports to Japan could resume soon, after the ban imposed by China in 2010, following a territorial dispute over the Senkaku Islands.

On the WTO’s final ruling, the Ministry of Commerce of the People’s Republic of China (MOFCON), said in a statement that it would “strengthen management for resources products in the way that conforms to WTO rules, promote resource protection, uphold fair competition and realise sustainable development”.

China appealed against the WTO’s verdict in April, claiming its export policies were justified by the necessity to protect natural resources.

“I think the government had foreseen the possibility of the WTO’s ruling. It’s a predictable result. It’s a good chance for us to protect the rare earths resources,” Zhang Anwen, deputy secretary of the Chinese Rare Earths Association (CREA), said at the sixth Baotou Rare Earths Industry Forum in August.

“We could strengthen ecological management, develop bigger ecological groups and reinforce the industrial concentration,” he added. 

 

Development of downstream applications

CREA said at the Forum that the rare earths market is not balanced, having an excess of 10,000 tonnes yttrium and 50,000 tonnes lanthanum and cerium.

Gan Yong, CREA’s chairman, said that the rare earths industry should focus on expanding the range of applications of light rare earths products and yttrium in order to reduce inventory.

Earlier in August, Inner Mongolia Baotou Steel Rare Earths Hi-Tech Co. signed a strategic cooperation agreement with high-tech company Sinopec Catalyst Co. and the Baotou Rare Earths High-Tech Industrial Development Zone to develop rare earths-based catalysts in oil refining, de-nitration and cracking processes.

Zhang said that oversupply exists not only in the raw material market but also in rare earths-based applications, including permanent magnets, luminescent powders, hydrogen storage and catalysts.

Rare earths polishing powder production amounts to 60,000 tpa, much larger than both internal and global demand put together, with demand amounting to 5,000 tpa in Japan and 2,000 tpa in the US.

The current oversupply has been impacting rare earths prices, which reached their lowest levels prior to 2010, with a further fall of 148 points in the price index as of August 2014, according to CREA.

Prices for cerium, lanthanum and ytterbium fell by 40% year-on-year (y-o-y) in the second half of 2013.

According to figures from the CREA, rare earths export volumes in 2013 rose by 38.3% y-o-y but export values fell by 36.7% in the same period; industry officials said they believe the decline in export values is an ongoing trend.

Illegal mining

Jia Yinsong, head of the rare earths office at China’s Ministry of Industry and Information Technology (MIIT), said that small-scale illegal mining has also impacted prices and that the government is adopting new policies to regulate the industry.

In August 2013, the MIIT and other ministries, including the Ministry of Public Security, the Ministry of Land Resources and the Ministry of Environmental Protection, carried out a three-month investigation to combat illegal production of rare earths in the country.

Following the investigation, 126 rare earths firms saw production suspended and 161 firms had their production licenses revoked. In the city of Ganzhou, in the Jiangxi province, more than 40 officials were found to be involved in illegal rare earths mining and processing.

The campaign estimated a total of 19,000 tonnes of rare earths came from illegal mining operations.

“Keeping pressure up to combat the rare [earths] black chain is conducive to further regulate rare earths market stability,” Jia said at the Forum.

Industry consolidation

Since earlier this year, the Chinese government has also been supporting the formation of large rare earths groups, promoting vertical integration and consolidation to reduce competition in the market and improve output control.

Beijing approved several of these rare earths groups in late July, including the North China Baotou Steel Rare Earths Group, led by the world’s largest producer, Inner Mongolia Baotou Steel Rare Earths Hi-Tech Co.

Other major producers, including China Minmetals and Aluminium Corp. of China (Chinalco), are also forming groups.