China’s Rare Earths Squeeze

By: Anthony_David

China’s policy of tightening its rare earth export quota has been causing quite a furor in the rare earth metals market since 2009. With increasing technological advances, the demand for rare earth metals is only increasing worldwide and the declining supply is causing prices to shoot upwards. Prices can come down only if end users reduce production and thereby reduce demand. However, that is an unlikely situation and even if it did happen, the effects are likely to be short lived.

The trend of many end users of rare earth metals moving their manufacturing units to China for easier access to raw materials will change only when western companies begin production. Molycorp is selling rare earth metals left over from earlier mining while Australia’s Lynas Corp opened its Mt. Weld mine on August 4. However, there will be no significant production until 2013 at the earliest. Until then, high prices are here to stay. Little change is expected in Q4 of 2011.

Zhang Di of the China Daily reports, “Rare Earth prices will remain bullish in the second half of this year, but won’t be higher than the first half’s levels, as companies in downstream activities halt production due to expected high operating costs.”

In a recent interview, Molycorp CEO Mark Smith said while global demand continues to be high, “supply outside China continues to be tight, as China continues to reduce its net rare-earth-oxide export quotas. We simply cannot produce enough for our customers.”

A New York Times report states, “For the last two years, China has imposed quotas to limit exports of rare earths to about 30,000 tons a year. Before that, factories outside the country consumed nearly 60,000 tons a year. China has also raised export taxes on rare earths to as much as 25%, on top of value-added taxes of 17%.”

China contributes 97% of the world’s rare earth metals production and Japan is the largest buyer of these metals. Prices have been increasing at such a rate that Japanese buyers are no longer signing six-monthly sales contracts but quarterly ones. They are also earnestly looking for alternative sources of rare earth metals.

Tokyo based analyst Shinya Yamada of Credit Suisse AG said that since May this year, prices have increased by almost three times. Such increases will force companies to avoid manufacturing products that require the 17 rare earth metals. Japanese companies such as magnetic and electronic materials maker Hitachi Metals Ltd., hybrid cars and wind turbines maker Toyota Motor Corporation, and trading houses Sojitz Corporation and Sumitomo Corporation are a few companies that have been hard hit by China’s tightening export policy. The two trading houses import most of Japan’s rare earth requirements.

Fujinori Sato, a deputy manager at Sojitz Corporation said, “China changed its strategy from limiting export quotas to tightening regulations for digging and refining. Prices may go up further later this year.”

Most large-scale users of rare earth metals are developing technologies that will enable them to slowly reduce the use of rare earth metals and still make effective products. Sojitz Corporation has begun investing in rare earth mines in Brazil and Australia while Aichi Steel Corporation plans to begin sourcing its rare earth requirements from South Africa.

By Anthony David

http://www.criticalstrategicmetals.com

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© 2011 Copyright  Anthony David- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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