The Consequences of Mining Rare Earths and Trading Gold Futures In China – Part One

by Taras Berezowsky on

The headline of this post attempts to wrap a few key goings-on in China, centered on rare earth metals mining and gold and futures trading, into one large picture. China’s rare earth metals industry will have a new oversight body of sorts, while a local court came up with a rather drastic punishment for a gold trader. We’ll also look at how other metals markets in China — namely aluminum — are influencing the current global supply/demand picture.

China Government Sets Up Rare Earth Mining Association

Both China Daily and then Xinhua (via Reuters) reported over the past week and a half that the Chinese are putting a rare earths “association” in place (composed of over 100 members in the industrial chain, including Batou Steel Rare Earth and China Minmetals), ostensibly to provide “production guidelines, market research and channels of communication between companies and the government,” in addition to “play[ing] a role in influencing rare earth import and export quotas,” according to the China Daily article.

Of course, China is likely putting a good public relations face on one of its more maligned metals industries — rare earth mining — as they prepare for fundamental political changes in the future. While many analysts don’t expect a hard landing for China, the government has probably finally realized the steps they need to be taking for sustained economic growth.

Jack Lifton, writing in Technology Metals Research, noted that the Chinese are simply doing what they can to secure domestic supplies of rare earths (especially heavy rare earth elements, or HREEs), and that they won’t be moving forward with HREE production “until the environmental issues have been dealt with.” (In the short term, Lifton predicts Chinese HREE prices “will immediately come under pressure and then trend upwards.”)

Downward price trends for select HREEs in recent months. Source: MetalMiner IndX℠

The real problem, Lifton concludes, is that the US has not taken effective steps to secure rare earths supplies, unlike the European Union (which, he writes, will close the loop of its own self-sustaining, HREE-producing supply chain by mid-decade) and Japan (which only needs a mine to close its domestic supply chain loop).

China’s Environmental Pollution Problem

But will the association’s creation and subsequent actions produce any tangible environmental benefits? Speaking to the circumstances of the WTO case brought by the US, Japan and the EU, Gareth Hatch writes that “it is difficult to see how controls on the ultimate destination of rare-earth materials once out of the ground and processed, have any effect on the practices used to get them out of the ground and processed in the first place.”

The key here is this: it is unclear how the association will be weighting each of its proposed charges (see the second paragraph above), but in context of Hatch’s statement, messing around with the quota levels has less to do with cleaning up the industry than, well, actually — physically — cleaning up the industry.

“A more persuasive argument could be made if overall production levels of rare earths were reduced, as a means of reducing the environmental impact of rare-earth mining, instead of restricting their export,” Hatch writes. This may well happen if the government delivers on its promise to consolidate some of the smaller, dirtier, more rogue extractors and processors with the larger firms.

Learn a Lesson: Don’t Lose Money Trading Gold Futures

If you’re a small rare earths miner or smelter, there are probably a few dirty mining practices you can still continue without the government noticing too much.

But don’t get caught losing money on gold futures trading. Otherwise you may be facing a death sentence.

Continued in Part Two.

Comments (2)

  1. Lisa Reisman says:

    Quite frankly I see little difference in this association than I do from China’s CISA which negotiates all of the iron ore contracts on behalf of Chinese steel producers. In fact, we only need to look at that as an indication of what this trade body will do. And for those of you long time MetalMiner readers might recall, CISA has had its share of ups and downs (e.g. remember when the Chinese steel companies negotiated directly with the Big 3 mining firms around CISA’s back?) The story here is that the RE world is tiny from an industry concentration standpoint. This entity will be very powerful – not only in dictating said “environmental concerns” (if you buy that argument) but export and trade policy – the real stick China likes to wield. -LAR

  2. Taras says:

    Well put, Lisa.

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