China Cuts Export Quotas for Rare Earths by 35%

(Corrects percentage cut in quotas in headline, first paragraph and amount in first half of 2010 in second paragraph in story published Dec. 28.)

China cut its export quotas for rare earths by 35 percent in the first round of permits for 2011, threatening to extend a global shortage of the minerals needed for smartphones, hybrid cars and guided missiles.

The government allotted 14,446 metric tons of rare earth exports split among 31 domestic and foreign-invested companies, the Ministry of Commerce said today in a statement. That compares with the first round this year of 22,282 tons and the second round of 7,976 tons, according to previous ministry statements. The government usually issues two rounds of export quotas every year.

China, which accounts for more than 90 percent of world supplies, slashed export quotas by 72 percent in the second half of this year, sparking a surge in prices. Japan, the world’s biggest user, has sought alternate supplies with companies including Hitachi Metals Ltd. and Toyota Motor Corp. seeking cooperative ventures at home and abroad to secure the minerals.

“This is in line with government officials’ comments that we need to protect the environment and resources,” said Chen Jiazuo, an analyst at metal researcher Beijing Antaike Information Development Co. “Controlling domestic production capacity, output and exports will continue to be the theme.”

Chinese government departments are still negotiating full-year rare earth export quotas for 2011, the ministry said in a separate statement today. Full-year permits should not be forecast based on the first-round limits announced earlier, according to the statement.

Industry ‘Sustainability’

The government will decide on the full-year quotas after evaluating domestic output and demand, as well as global requirements, the ministry said. The “sustainability” of the industry in China also will be reviewed, according to the statement.

Last year, China’s government clamped down on its rare earth industry, setting production quotas to bolster prices. China said in July that it would reduce export quotas in the second half to supply its own electronics industry and overhaul a mining sector blamed for causing widespread environmental damage.

“As China has advanced technologies in rare earth production, companies can seek cooperation to develop mines abroad,” Antaike’s Chen said.

China will also raise export taxes for some rare earth elements to 25 percent next year, the Ministry of Finance said this month. That was up from the 15 percent temporary export tax on neodymium, used in batteries for hybrid cars including Toyota’s Prius and Honda Motor Co.’s Insight.

U.S. Tensions

The latest move to curb exports may further exacerbate tensions with the U.S., which last week said it may file a World Trade Organization complaint over restraints on supplies of the minerals. Rare earths are 17 chemically similar elements including neodymium, cerium and lanthanum that are used in the production of electronics.

Molycorp Inc., the owner of the world’s largest non- Chinese rare-earth metals deposit, agreed this month to form joint ventures with Japan’s Hitachi Metals Ltd. to produce alloys and magnets in the U.S. Hitachi Metals, Japan’s largest maker of rare-earths magnets, uses as much as 600 tons of the metals each year.

Shares of Molycorp rose $2.85, or 5.8 percent, to $52.29 at 10:33 a.m. in New York Stock Exchange composite trading. Rare Element Resources Ltd., a Vancouver-based rare-earth miner, jumped $2.29, or 20 percent, to $14.02 in New York. General Moly Inc., which is developing a molybdenum mine in Nevada, climbed 42 cents, or 7.1 percent, to $6.32.

Toyota Venture

Toyota Tsusho Corp., a trading company affiliated with the carmaker, formed a venture with Sojitz Corp. and a Vietnamese state-run mining company to export rare earth metals to Japan from 2012, spokesman Katsutoshi Yokoi said in September.

Toyota spokeswoman Shiori Hashimoto declined to comment on China’s latest move today, saying the company already was exploring alternative sources of rare earth.

The price of neodymium oxide, used in magnets in BlackBerrys, has surged more than fourfold to $88.5 a kilogram from $19.12 in 2009 because of rising demand and reduced supply from China, according to Sydney-based Lynas Corp., which is building a A$550 million ($542 million) rare earths mine in Western Australia.

Demand growth for neodymium and dysprosium may be 15 to 20 percent per annum, Damien Krebs, a metallurgy manager at Australia’s Greenland Minerals and Energy Ltd., said in an interview on Nov. 10. Neodymium is also used in mini hard drives in laptops and headphones in Apple’s iPod.

‘Guide’ Industry

China is close to establishing an association that will work under government oversight to “guide” the domestic rare earths industry, Wang Caifeng, a member of the committee overseeing the group’s formation, said at a conference in Beijing today.

The China Association for Rare Earth will be organized under the authority of the Ministry of Industry and Information Technology and include the biggest 93 domestic producers of the minerals, Wang said.

Output and export of rare earths from China have been reduced because some of the companies mining the minerals were causing “severe” environmental damage and had to be closed, Wang said.

“Excessive mining in southern provinces is still severe and it severely damages the environment. That’s why China is controlling mining, and naturally output and export will be reduced,” Wang said.

To contact the Bloomberg News staff on this story: Helen Sun in Shanghai at hsun30@bloomberg.net

To contact the editors responsible for this story: Richard Dobson at rdobson4@bloomberg.net; Patrick McKiernan at pmckiernan@bloomberg.net.

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