China Looking to Better Manage Reserves of Rare Earth Metals

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Global Trade, Green, Minor Metals

Two recent articles on essentially the same topic illustrate the differing views that can be placed on China’s decision to restrict Rare Earth Element (REE) mining to a limited number of major state enterprises. The first with the headline, “China tightens stranglehold on rare earth minerals appears in the Telegraph newspaper and goes on to say how the US is turning to the World Trade Organization (WTO) to bring legal action to reverse restrictions China has placed on the export of these critical metals. The article raises the specter of the west being held to ransom saying developed countries, including the US, are almost totally reliant on China for rare earth metals after years of cheap Chinese exports in the 1980s and 1990s rendered Australian and American rare earth mines uneconomic. The main thrust of the WTO action seems to be that China’s move is unfair to foreign companies because by restricting exports, China is creating a situation in which domestic consumers have access to lower prices but overseas firms are left to fight for limited supplies and as a result will have to pay much more.

In fact the main objective of the recent Chinese announcement is to crack down on illegal mining and more effectively husband what they see as a dwindling resource. Quoted in a Mineweb article Zhang Anwen, deputy secretary-general of the Chinese Society of Rare Earths said the minerals are “very much undervalued because of over-exploitation and improper management.” Zhang told the New York Times, “We want a higher price on rare earth minerals. …Foreign buyers should more or less share our costs, including the high cost of reducing environmental pollution.”

China produces 97% of the world’s supply of rare earth elements although it only accounts for 59.3% of global rare earth deposits. In March, the Ministry of Land and Resources announced that REE production would be capped at 892,000 tons this year. In a Wall Street Journal article, James Bacchus, a former chairman of the World Trade Organization’s Appellate Body and a trade negotiator, noted, “The Chinese stand accused by some trading partners of hoarding rare elements and other raw materials that are essential to many globally traded products.” But Bacchus said “China is hardly the only country considering export restrictions as the race for natural resources heats up in the wake of the recession. However, China said it is not violating WTO rules and is aimed at legally protecting its natural resources. “WTO rules stipulate that its members can take measures to protect their raw materials from being exhausted, and China’s measures are in line with them,” He Weiwen, managing director of the China Society of WTO Studies is quoted as saying.

It is likely the damage done to western REE mining and refining operation in the 80/90’s by cheap Chinese exports was not so much part of a grand strategy to wipe out the competition and set the stage for world domination but rather the result of lax controls over mining, refining and exports. The Chinese are paying the price for this as much as the west. Vast quantities of valuable metals have been exploited by their own corporations and the world has benefited from cheap supplies, stimulating new technologies. Now the whole world, China included, will have to get used to higher prices. The benefit will be to support western based resource companies such as Molycorp and Lynas, and encourage engineers to make the most of  every gram used. We don’t see China gaining a huge competitive advantage even if there is a price discrepancy between domestic and world prices, except in those few application where large quantities of REE are used per device such as wind turbine magnets. If Chinese producers flood the market with low cost wind turbines, western producers have anti dumping legislation to protect them and are not slow to use it as we have seen recently with aluminum extrusions. History shows that where China has a sharp polarization between domestic and global prices the gray market soon steps in to leak exports or imports and take advantage of the differential.

–Stuart Burns

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