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China’s Rare-Earth Ban Would Hurt Japan, Kaieda Says

Japan Finance Minister Yoshihiko Noda
Japan Finance Minister Yoshihiko Noda said, “There has been concern that some problems have developed at customs for exports and imports and there has also been concern about rare-earth materials. We are looking into that.” Photographer: Tomohiro Ohsumi/Bloomberg

Sept. 28 (Bloomberg) -- China’s “de facto” ban on exports to Japan of rare earths, a group of 17 metals used in weapons, hybrid vehicles and laptop computers, may have a “big impact” on Japan’s economy, Japanese Economy Minister Banri Kaieda said.

China’s Ministry of Commerce spokesman Chen Rongkai said in a telephone interview today that China has not imposed such a ban, repeating a stance he made last week, after media reports said China was restricting shipments. Japan Finance Minister Yoshihiko Noda said today there has been no indication from China that there is a formal ban in place.

“There has been concern that some problems have developed at customs for exports and imports and there has also been concern about rare-earth materials. We are looking into that,” Noda said at a press conference in Tokyo today. “We intend to confirm the facts of the situation by using our diplomatic routes.”

Ties between Asia’s two biggest economies soured over the detention of a Chinese fishing boat captain whose ship collided with two Japanese Coast Guard vessels. Japan’s decision to release him last week failed to assuage China, which demanded compensation for the seizure of the trawler and crew.

The ban “could have a very big impact on Japan’s economy,” Kaieda said today in Tokyo. China has been making a “very severe” response to the captain’s arrest, he said.

First Step

Japan’s Ministry of Economy, Trade and Industry said it will investigate China’s de facto export ban on rare earths. The government will check with about 30 domestic companies including users and trading houses to confirm whether China has banned the shipments, Tsutomu Murasaki, director of METI’s non-ferrous metals division, told reporters at a briefing in Tokyo today.

A Japan-China summit would be the first step toward improving relations between the nations, Kaieda said. Japan’s Prime Minister Naoto Kan plans to attend a summit of Asian and European leaders in Belgium next week, according to Chief Cabinet Secretary Yoshito Sengoku.

Japan is China’s second-biggest trading partner after the U.S., with two-way commerce in the first seven months of the year rising 24.7 percent from the same period in 2009 to $65.2 billion, according to Chinese customs statistics.

China’s government wants companies including Jiangxi Copper Co. and China Minmetals Corp. to consolidate rare earth resources by buying mines or smelting facilities. The nation, which controls more than 90 percent of the global rare earth market, also cut export quotas this year, forcing prices higher.

‘System Failure’

China Rare Earth Holdings Ltd., which exports 30 percent of its products to Japan, said shipments to the nation were halted from last week after a local branch of the Chinese trade ministry stopped issuing licenses.

“We couldn’t get export licenses to Japan,” John Jiang, a sales manager in charge of exports at China Rare Earth, said today by phone from Yixing, Jiangsu province. “They cited system failure.” The company’s exports to Europe and the U.S. are unaffected, Jiang said.

The likelihood of a sustained or extensive embargo is low, Macquarie Equities Research said in a report Sept. 24. “The intertwining of supply chains and trade between China and Japan would result in effects damaging to both. However, Japan’s vulnerability from its dependence on China’s rare earth production has been highlighted once again.”

Building Stockpiles

Advanced Material Japan, a Tokyo-based trading house that specializes in rare earths, has been building its stockpiles as much as possible, pushing up prices, said a spokesman, who declined to be named.

Mitsubishi Corp. said it was unable to confirm whether exports had stopped. “The weekend shipment hasn’t passed through customs yet. We are still checking the reason for the delay,” said Shunsuke Nanami, manager of corporate communication.

Japan Oil, Gas and Metals National Corp., which manages Japan’s strategic metals including rare earth, declined to disclose stockpile details, said spokesman Kazuhiro Uematsu.

The rare earth policy has strained trade relations with countries including the U.S. and Japan. The U.S. has asked business groups and unions to provide evidence that China is hoarding rare earths for a case that may be filed at the World Trade Organization, according to industry representatives who asked not to be identified.

To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net; Jarrett Banks in Tokyo at jbanks15@bloomberg.net.

To contact the editor responsible for this story: Teo Chian Wei at cwteo@bloomberg.net.

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