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China Pledges Rare-Earth Supply as Users Abroad Say Prices Soar

Samples of various rare earth compounds are displayed in the showroom at Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. in Baotou, Inner Mongolia, China. Photographer: Nelson Ching/Bloomberg
Samples of various rare earth compounds are displayed in the showroom at Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. in Baotou, Inner Mongolia, China. Photographer: Nelson Ching/Bloomberg

Oct. 21 (Bloomberg) -- China, producer of more than 90 percent of the world’s rare earths, pledged to maintain supplies as users of the minerals needed for electronics, wind turbines and smart bombs said prices are soaring.

The nation will “continue to supply rare earth to the world” while maintaining restrictions on exports “to protect exhaustible resources and ensure sustainable development,” China’s Commerce Ministry said in a statement yesterday, after the New York Times and China Daily reported that the government plans further export cuts.

China reduced its second-half export quota for the minerals by 72 percent this year, saying it needs to shut polluting mines and ensure it can meet domestic demand for clean-energy technology and advanced industry. Prices have increased threefold to 15-fold since the quotas were introduced in July, according to Jeff Green, president of J.A. Green & Company LLC in Washington, who represents miners and users of the elements.

“Companies I’ve talked to say there’s no ban on rare-earth exports, however materials are still being held up in customs and shipments are delayed,” Green said in a phone interview. “Many believe rare-earth quotas for the second half of 2010 are exhausted, leaving materials unavailable for sale.”

Rare earths are a group of 17 chemically similar metallic elements, including lanthanum, cerium, neodymium and europium. The elements are used in radar, high-powered magnets, mini-hard drives in laptop computers, catalytic converters for vehicles, electric-car batteries and wind turbines.

Domestic Manufacture

“A key part of China’s strategy is to promote domestic manufacture of components and products containing rare earths, and capping exports of the raw materials themselves is a highly effective way of doing this,” Albert Cheung, an analyst with Bloomberg New Energy Finance, said.

China’s control of rare-earth elements give it “market power” over the U.S., the Government Accountability Office, the investigative arm of Congress, said in a report in April. China restricts exports of the elements through quotas and export taxes of as much as 25 percent, the GAO said.

The U.S. was self-sufficient in the materials until the mid-1980s, when lower labor and regulatory costs helped China climb to dominance, the U.S. Geological Survey said in a May 2005 report.

A U.S. rare-earth mine, in Mountain Pass, California, shut down most operations in 2002. Molycorp Inc., which owns the mine, plans to reopen it this year, the company said in a prospectus earlier this year.

WTO Case Weighed

The U.S. is weighing whether to file a case at the World Trade Organization over China’s aid to its clean-energy producers, Trade Representative Ron Kirk said on Oct. 15. He was acting on a complaint from the United Steelworkers union that says the assistance violates global trade rules.

Restriction of supply is prompting some consumers to consider alternative sources for rare earths.

Gamesa Corp. Tecnologica SA, Spain’s biggest wind-turbine maker, said countries such as the U.S., Canada and Australia hold unexploited deposits of the minerals. While most rare earths are currently obtained from China, “there is no scarcity of rare-earth minerals in the medium to long term,” a Gamesa spokeswoman said by e-mail, declining to be identified in line with company policy.

In Germany, the government yesterday adopted a strategy to secure supply of raw materials including rare earths. Chancellor Angela Merkel said last week that it’s “urgently necessary” to boost European investment in eastern Europe and Central Asia to counter expanding Chinese interest in rare minerals.

Companies Reduced

China has cut the number of rare-earth companies this year, said Li Zhong, deputy general manager of Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. By 2015 the government wants to reduce the number of rare-earth oxide producers to 20 from 90, he said.

China set a production cap of 89,200 metric tons this year, while reducing its export quota to 22,300 tons, according to estimates by Guosen Securities Co.

“China might raise the production cap and export quota slightly next year,” said Wang Caifeng, until last week deputy director at the Ministry of Industry and Information Technology who oversaw the sector, saying that was her personal opinion. She is now in charge of setting up the ministry-affiliated China Rare Earth Industry Association.

“Right now it’s very difficult to find prices because the situation is so fluid,” Ed Richardson, vice president at Thomas & Skinner Inc. in Indianapolis, a maker of magnets for the military whose competitors use the minerals, said in an interview. “China is not talking, but this does fall in line with the quotas they laid out in July.”

Japan Shipments

China hasn’t resumed exporting rare earth minerals to Japan after shipments were curtailed last month during a territorial dispute, Chief Cabinet Secretary Yoshito Sengoku said yesterday in Tokyo. “The situation with regard to Japan hasn’t changed.”

Japanese officials said supplies were cut after a Chinese fishing trawler collided with two Coast Guard boats in the East China Sea near islands claimed by both countries. Restrictions disproportionately affect Japan because it accounts for 65 percent of Chinese rare-earth metal exports, according to a Sept. 24 report by Macquarie Group Ltd.

To contact the reporters on this story: Mark Drajem in Washington at mdrajem@bloomberg.net;

To contact the editors responsible for this story: Larry Liebert at lliebert@bloomberg.net

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