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business newsChina Has Rare Earth Supply Monopoly -- For Now
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Oilprice.com Aug 11, 2011 1:30 pm
A gold rush is starting in mining rare earth elements as other countries and companies look to increase supplies and reduce reliance on China.
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Zhang should know, as his concern is China's leading rare earths producer -- the Baotou mine produces more than 95 percent of China's production, while Chinese mines currently account for 97 percent of global supplies.
The increase in global demand for rare earth metals has sent prices soaring in world markets. According to the China Nonferrous Metals Industry Association, since January rare earth metal product prices jumped 200 percent, with the prices of some of the rarer commodities rising 500-1,900 percent. Since January China's exports grew 830 percent to $1.54 billion.
Now, the good news: Despite fears of Western capitalists, Beijing apparently has no immediate plans to curtail supplies.
And finally, the interesting news: The Chinese Ministry of Industry and Information Technology said on its website that it will conduct a broad audit of domestic rare earth metal producers in Inner Mongolia to check for production quota breaches. The audit's intention is to uncover rare earth metals producers breaching existing regulations and continuing covert trading in rare earth metals.
Analysts nervously track Chinese policy, as since 2003 China has reduced the amount of rare earths available for export by 40 percent, while over the past decade global demand has tripled from 40,000 to 120,000 tons.
Earlier this year China curtailed its total output of rare earth oxides to 93,800 tons, up only 5 percent from 2010 production levels and also recently raised taxes on rare earth elements for the second time, leading foreign analysts to conclude that the era of "cheap" rare earths is over.
Rare earth elements (REEs) are used to produce everything from wind turbines to solar cells and low-energy light-bulbs as well as iPhones (AAPL) and X-ray machines. Most ominously for Washington, REEs are also a strategic component of many U.S. cutting-edge high-tech weapons systems, incorporated in the guidance systems of missiles and laser-guided munitions.
But the soaring REE prices have led to a wild East "gold rush," with a number of freelance entrepreneurs setting up in Inner Mongolia, a too wild and wooly capitalist endeavor the that audit is designed to curtail.
The record-high REE prices have also sparked a flurry of exploration activity throughout Central Asia, most notably in Mongolia, where a 2009 estimate by the U.S. Geological Survey concluded that Mongolia has 31million tons of rare earth reserves. Mongolia has some of the world's richest deposits of gold and copper, uranium, coal, fluorspar as well as REEs such as tantalum, niobium, thorium, yttrium and zircon.
Six months ago California-based Green Technology Solutions and Rare Earth Exporters of Mongolia formed a joint venture to exploit Mongolia's REE potential, sending out their first shipment in April to South Korea via Vladivostok.
So, the REE race is on. What is perhaps most interesting is that Western analysts fear covert potential malevolent motives dictating Chinese policy on REE exports when, in fact, up to now Beijing has behaved as a responsible member of the global economic community.
Of course, soaring REE prices have nothing to do with Chinese policy.
This article was written by John C.K. Daly of Oilprice.com
No positions in stocks mentioned.
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