China's rare earths cutback raises ire

2010-12-29 10:36

Sydney - China has raised fresh international trade concerns after slashing export quotas on rare earths minerals, risking action from the United States at the World Trade Organisation (WTO).

China, which produces about 97% of the global supply of rare earth minerals, cut its export quotas by 35% for the first half of 2011 versus a year ago, saying it wanted to preserve ample reserves, but warned against basing its total 2011 export quota on the first half figures.

The US Trade Representative's office was "very concerned" about China's export restraints on rare earths and had raised its concerns with China, a spokesperson said on Tuesday.

US makers of high-tech products such as Apple's iPads, along with Japanese companies, have been scrambling to secure reliable supplies of the minerals outside China as Beijing steadily reduces export allocations.

Japan's Sony Corp said China's move to cut export quotas was a hindrance to free trade, and that it would work to reduce its reliance on Chinese supplies.

"At this point in time there is no direct impact on our company. But further restrictions could lead to a shortage of supply or rise in costs for related parts and materials," Sony said. "We will watch the situation carefully."

Sony, maker of Bravia brand flat TVs, Vaio PCs and the PlayStation 3 videogame console, will look for ways to cut its use of rare earths, including developing alternative materials, Sony spokesperson Ayano Iguchi said.

A boon to some

China's move, however, came as a shot in the arm for some companies.

Lynas Corp, which owns the world's richest known non-Chinese deposit of rare earths, jumped over 10% even though it will be at least a year before it is capable of mining any material from a new lode in Australia.

Other rare earths companies, including China Rare Earth Holding, Arafura Resources, Alkane Resources and Greenland Minerals and Energy, also gained between 8% and 10%.

"Export quotas continue to be a tool for the Chinese government to limit the export of China's strategic resource," Lynas executive chairperson Nick Curtis said in a statement.

"The growth in the Chinese domestic market coupled with a decrease in production of rare earths in China is a likely cause for the tightening of export regulations," said Curtis, whose company is aiming to start production in about a year and has already forged supply contracts with Japanese traders.

World demand for rare earths at present is about 110 000 tonnes a year, with China accounting for about 75% of total demand with the remainder split between Japan, the United States and Europe, in descending order.

Demand for rare earths is set to more than double to 250 000 tonnes by 2015, according to industry estimates.

"Concerned parties should not estimate full-year quotas for rare earth minerals just by looking at the first set of quotas," China's ministry of commerce said.

Final quotas will take into account domestic production and demand both at home and abroad, according to the ministry.

Deals for supply

Prices have surged for these minerals, also used in making fluorescent light bulbs, since authorities in Beijing slashed their rare earth exports by 40% earlier this year, saying China needed them for its economic development.

Last week, Hitachi Metals signed a joint venture with US-based Molycorp to help ensure a steady supply - an announcement that sent its shares up 15% in a single trading session.

That followed word earlier this month that Sumitomo Corp agreed to invest $130m in Molycorp to secure a seven-year supply of the materials.

Since debuting in late July at $14, Molycorp's stock price has nearly quadrupled.

Molycorp owns a rare earth mine in Mountain Pass, California, which is scheduled to resume production next year after a 10-year hiatus.

Japan's Trade Minister, Akihiro Ohata, told reporters on Tuesday he believed Japan would still be able to secure enough rare earth supplies in 2011 even after China's quota cuts, but said the situation would need further study.

Ohata's comment was based on the assumption that the expected amount of imports in the first half of 2011 would be roughly equal to the average of imports for the first and second halves of 2010, a spokesperson for the ministry said.

Hyundai Mobis, South Korea's top automotive parts maker and a major supplier to Hyundai Motor, said that the quota would have an impact on the two companies, as rare earth is used in electric motors for hybrid vehicles and Hyundai Motor is increasing its hybrid vehicle sales.

A spokesperson for Hyundai Mobis added that the two companies have been preparing measures to cope with rare earth issues, including diversifying imports.