China Re-Nationalizes Rare Earths – Part Two

by Stuart Burns on

Continued from Part One.

On the flip side, however, the rise of such widespread illegal mining of rare earths has come about because prices for rare earth elements have risen dramatically over recent years, in particular since Beijing began restricting exports. Prices have risen between eight-fold and forty-fold over the last three years, prompting General Electric to say that if a $2 cup of coffee had suffered the same price inflation over the last 12 months as Europium oxide (used in fluorescent bulbs), the same cup of coffee would now cost $24.55!

Price rises have not been helped by speculative activity, either. Hedge funds and other speculators have been buying and hoarding rare earths this year, with prices rising particularly quickly through early August. Apparently neodymium and europium inventories have been building in Shanghai warehouses as speculators see the one-way bet.

Although United States and Mexico have asked the WTO to force China to dismantle its tightening export-quota system and reduce tariffs, Beijing is unlikely to give in easily. WTO rules permit action in the interests of preventing environmental damage, but the West’s case relies in part on the extent to which China loads export prices and restricts export volumes while allowing the domestic market unfettered access to supplies.

Here, Beijing appears on shaky ground. Western producers that set up in China to access low-cost REE are not complaining about major raw material restrictions, suggesting Beijing is running a two-tier system. Consolidating mining and refining into just four state-owned entities will certainly help Beijing manage the environmental issues, but it will also greatly enhance their ability to control price or even smuggled exports.

The struggle through the WTO is likely to go on for months, if not years, and while the West is developing alternative supply options, they will take time to come on stream in a market already facing ever-rising demand. The result will be, justifiable or not, enhanced competitiveness for any manufacturers operating within China and higher prices for products from fluorescent lights bulbs to wind turbines for some years to come.

–Stuart Burns

Comments (2)

  1. admin says:

    Though the Times (and your first post) make a compelling environmental argument, they are largely out of bound claims, according to China’s participation in WTO. None of these rare earth metals were specifically identified in China’s original petition in the WTO as being exempted. I think the WTO will rule against China (as they should). The bigger issue is the environmentalists in the US and other parts of the western world who created this problem in the first place w/ their NIMBY politics and buying organizations that demanded cheap prices (e.g. from China). LAR

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