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The hand giveth, the hand taketh away

China only has about 30 percent of the world's rare earth metal deposits, but thanks to clever planning it today controls 97 percent of the world's production of these scarce resources.  Deposits of this family of 17 elements -- vital to power electronics found in televisions, smart phones, electric vehicles, and a variety of other devices -- are found in California, Canada, Australia, and Russia, but it will take years to bring them online.

In short the world is at China's mercy for now when it comes to rare earth supply.  And China's biggest rare earth metal producer -- the Inner Mongolia Baotou Steel Rare-Earth (Group) has announced that it is severing shipments to the U.S., Japan, and Europe for one month in an attempt to artificially inflate prices.

Inner Mongolia Baotou Steel Rare-Earth also plans to buy rare earth metals in an attempt to further move prices upward.  The company already controls 60 percent of China's rare earth production, thanks to the Chinese government's decision to merge 35 other local companies into the Inner Mongolia business, or fade them out.

Rare earth metals
China controls 97 percent of the world's rare earth metal production.
[Source: Wikimedia Commons]

While the Sichuan province in the southwest and Shandong in the east produce significant amounts of rare earth as well, the Inner Mongolia Baotou Steel Rare-Earth Group's decision should be enough to move prices significantly.

Doing so will benefit China in a couple ways.  First, prices will almost certainly go up, reverse a downward slide.  Lynas Corp., an Australian rare earth producer reveals that since June the price of neodymium oxide has declined 34 percent to $157 per kilogram, while europium oxide is down 35 percent at $2,904 per kilogram.

Sun Fan, a rare earth analyst for Goldstate Securities in the southern city of Shenzhen comments in a Associated Press interview, "The impact on the market supply will be substantial.  The dual measures of suspension and purchase will offer support for the rare earth prices and make the prices gradually pick up in the future."

Aside from raising prices higher, the pause in production will allow China to try to kick start its efforts to produce locally produce magnets.  When it comes to the production of the magnets used in the electric motors of hybrid and electric vehicles, typically the biggest profit is not realized at a commodity level, but at a magnet producer level.  Thus in the past foreign nations like the U.S. and Japan have pocketed the biggest profits.  China hopes to change that.

China hopes to supplant its U.S. and Asian rivals as the main producer of electric motor magnets, by choking resource supply to its foreign competitors. [Source: ThinkGeek]

China's Ministry of Land and Resources in September bragged that rare earth metals were the nation's "21st century treasure trove of new materials."  It argued that exports should be tightened, choking foreign supply and favoring Chinese manufacturers.

Source: AP

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I'm sorry I forgot....
By YashBudini on 10/21/2011 1:02:47 AM , Rating: 5
Remind me again why China has most favored nation status?

RE: I'm sorry I forgot....
By sgw2n5 on 10/21/2011 1:08:57 AM , Rating: 5
Because they have a 1 billion+ population of people willing to live well below standardized middle class in order to provide "wealthier" countries with cheap plastic shiat.

RE: I'm sorry I forgot....
By Kurz on 10/21/2011 9:32:22 AM , Rating: 2
They arent content with poverty. Each day more and more people are moving up to the Middle class. Watch Milton Friedman's 'Free to Choose' on Youtube. Look at Hong Kong, Look at every Major city in China.

RE: I'm sorry I forgot....
By DrChemist on 10/21/2011 12:30:58 PM , Rating: 1
Yeah standard middle class though is considered those families or individuals making $10,000 or more. That's below poverty in US. US minimum wage would make up ~$15,000. That's a huge difference. People are still largely unable to afford homes. A 400sq.ft apt in Shanghai is almost $200k. That requires an income of more than $80k/yr to afford and can really only fit 1 person by US standards. Give it $15 years when it gets so bad that a revolution occurs and Unions develop. Goodbye cheap Chinese labor. US companies will then just move to the next 3rd world country to get cheap labor. As long as the US keeps buying we keep funding other countries like china to do well. Why is the 70% of world consumers (400million US citizens) letting them control us. We have the power but don't care because we don't want to spend an extra $2-$10 for that item we want so bad.

RE: I'm sorry I forgot....
By jefferai on 10/21/2011 1:10:02 PM , Rating: 5
We have the power but don't care because we don't want to spend an extra $2-$10 for that item we want so bad.

I want to. But I don't have a choice.

RE: I'm sorry I forgot....
By JediJeb on 10/22/2011 6:12:20 PM , Rating: 4
Exactly, I would buy an American made fishing pole and reel if I could, but searching I could not find any nearby. I finally found a $400 reel made in USA but it was for offshore fishing, a little overkill for fishing in my local pond.

Many consumers will pay a premium to buy locally produced items but the ones marketing them (eg WalMart) can always get a much better profit margin importing cheaper and lower quality goods. Lower quality means it will not last as long and you have to return and purchase again. I would be happy to pay a 5x premium price if the product lasted even 4x as long simply so I wouldn't have to buy it again so often.

RE: I'm sorry I forgot....
By TheEinstein on 10/23/2011 5:50:04 AM , Rating: 5
You are all missing many many points here.

Wish I had my bookmarks, had to factory reset this phone, so I have to try this myself.

We cannot create cheap goods here because if we mine environmentalists sue and we have regulations requiring a lot more overhead than any other nation on Earth simply because "We are the greatest nation on Earth and we must be better than everyone else" and more expensive with less total output per capita than most nations.

We cannot create cheap goods here because we stop trucks from idling, and require outrageous environmental standards upon them as well as the toughest standards in transportation outside Europe 'because the world will die otherwise' (p.s. see for evidence global warming is false. I plan a $10,000 commercial series highlighting this stuff as part of my political campaign).

We cannot create cheap goods because Unions keep demanding raises. If wages were locked for life there would be no inflation... but I digress... in any event we keep giving them extremely high salaries for sometimes simple work "because fair wages are high wages".

We cannot make cheap goods because of Government Agencies passing new and painful regulations on a 4-6 year cycle. Such as the new cross border pollution act. There is a variety of reasons these agencies use from 'weidling should conserve energy anyways' to 'itthe will save a dozen lives a year' to 'thethe Earth will die otherwise'. China don't care about those things, just saying.

We cannot make cheap goods because Congress keeps playing favorites by taxing all to hell then choosing who gets subsidies and kickbacks. We do this because 'the rich should pay their fair share' when in reality it is 'those other rich need to pay for my friends share'.

We cannot create cheap goods because we refuse to fight economic wars against those who are doing so against us like China, because "We clearly have an addiction to their goods and we are the source of the problem" or some other nonsense.

I hope this list educates.

I am Michael Harrington and I endorse this message

P.S. do not read into this that I support changing this or that, this is commentary, not policy.

RE: I'm sorry I forgot....
By Strandwolf on 10/24/2011 4:51:49 AM , Rating: 1
Not into hyperbole much...that's good! Where are you running for office? I probably want to support your opponent.

RE: I'm sorry I forgot....
By TheEinstein on 10/24/2011 5:35:56 AM , Rating: 1
I have strict policies regarding what I see as trolling or definitely noncontributing posts, either of which you may be guilty of.

1) I do not provide you material comfort unless you rectify the situation.
Meaning I will not provide follow up posts except to explain my guidelines against such nonsense posts.

2) I do not provide you information requested if you frequently do such posts against me or others.


You could have posted why you disagreed with my post, or why it was such hyperbole to you, but you did not see fit.

You could have quoted one section in particular and provided a counter argument.

You could have posted your own opinions.

You could have asked reasonable questions.

RE: I'm sorry I forgot....
By mars2k on 10/26/2011 10:18:41 AM , Rating: 2
Harrington maybe they didn’t do it your way because you’re kind of a dingbat.

Nobody cares what your “policies” are.

None, as in “not a single one”, how’s that for specific, are anything but a mish-mash of nonsense that you hear on Fox every minute of the day.

I’ll quote specifically from your post….. “TheEinstein” Really?..... You? Come up with an original thought and get back to me on that.

RE: I'm sorry I forgot....
By InvertMe on 10/24/11, Rating: 0
RE: I'm sorry I forgot....
By Kurz on 10/24/2011 9:47:39 AM , Rating: 3
Heh, I guess the 35% Corporate tax rate has nothing to do with it (One of the highest in the world). Or the Massive Payroll Taxes, Or Forcing Businesses to Provide Healthcare for their employees.

Nah That all cant be the reason why we don't make stuff here.

RE: I'm sorry I forgot....
By curelom on 10/24/2011 11:35:42 AM , Rating: 3
and don't forget all the regulations that have been heaped upon businesses in the past 10 years.

RE: I'm sorry I forgot....
By senecarr on 10/27/2011 4:21:19 PM , Rating: 2
You do realize that while we have a high MARGINAL corporate tax rate of 35%, compared to the rest of the world, we have one of the lowest actual corporate tax rates? Corporations use so many loopholes to reduce their actual taxes paid that of all developed nations, only Iceland has a lower effective tax rate based on paid corporate taxes as a percentage of GDP?

RE: I'm sorry I forgot....
By intelcpu on 10/24/2011 12:19:16 PM , Rating: 2
Yes you are arguing well but the point in aspects of wealth especially in manner of global unequal labor incomes is a totally different.
Lets go to an auto dealer in Palo Alto to buy a fuel efficient car. Now to support the US economy you may be favoring a US manufacturer but it really does not matter which brand you are buying, since the supply chain for manufacturing a auto is global. Parts are made all over the world and mostly not in the US-Europe. The good news is that it doesn’t matter which company or which brand will get your money if the value is added in the USA than the local economy will benefit from it. We are talking about value added chains.

Recently china is opting for developing its human resources capabilities. If they are able to change the value adding chain in favor of themselves then we are going have a problem especially for the US- Europe labor with a mid-income.

RE: I'm sorry I forgot....
By Divide Overflow on 10/27/2011 7:26:04 PM , Rating: 2

RE: I'm sorry I forgot....
By dew111 on 10/28/2011 5:22:26 PM , Rating: 2
"If wages were locked for life there would be no inflation"

False. In a perfect system this might be true, but in our system, companies and individuals strive for more wealth. This leads to price increases of certain goods which then affects prices of other goods and so on. Your ideals, or anyone else's for that matter, are not going to change this. Unions keep rich management from screwing over the working people--the people who make up the group of consumers who are generally buying the most products. Less wealth for the masses ultimately leads to an economic collapse and/or revolution. Rich people would do well to observe the historical lesson illustrated by France's Bastille Days.

RE: I'm sorry I forgot....
By VooDooAddict on 10/21/2011 2:24:43 PM , Rating: 5
It's not just the consumers, choice. It's US and European businesses that have chosen to move operations/outsource production there. In many lines of products, there is NO western manufactured choice. Many US/EU stores to only stock the shelves with China made goods. They don't give the consumer a choice.

In industries where I have a choice, I spend more for US / EU sourced goods. For the most part these tend to be nitch industries like paintball though. In computer hardware I don't really have a choice :(

RE: I'm sorry I forgot....
By zmatt on 10/23/2011 4:48:16 AM , Rating: 2
Most computer hardware isn't Chinese. Intel is US and they fab in the states and invest a lot here as well. Most component manufacturers are also either Taiwanese, Japanese or Korean. A fair bit of assembly is done in China (such as most Apple products for example) but the chips, lcd panels and other components are made elsewhere.

RE: I'm sorry I forgot....
By cruisin3style on 10/21/2011 3:53:31 PM , Rating: 5
You have confused your info

The 70% of the US economy is consumption, but the US does not do 70% of the world's consumption...i found info that says the US and western Europe combined consume 60%

and it's also probably important to note that China's currency is kept artificially low compared to the dollar so if the official exchange rate converts to $10,000 the actual value of their wages might be in the $12k to $15k range (i'm not going to do the math but i've heard it is kept 20% to 40% below actual worth)

RE: I'm sorry I forgot....
By lyeoh on 10/23/2011 3:13:02 PM , Rating: 1
It's also important to note that:
1) The US pays China mostly in US dollars.
2) The US even borrows from China in US dollars ( the last I checked about 2 trillion?)
3) The US can create US dollars on demand as long as oil, wheat, CPUs are all traded in US dollars. In short the rest of the world lives in USA's "US Dollar Zimbabwe".
4) The Federal Reserve has in fact created more than 9 trillion US dollars since 2008 (think about what this means to those who have lent out trillions of US dollars, and/or have large amounts of US dollars).

So when the US grumbles about China's currency manipulation, trade "imbalance", I go: "What the fuck are you bunch grumbling about?".

The USA now looks like a fat slob who buys cheap goods and services from the poor hardworking guy next door using "Fat Slob Bonds" and "Fat Slob Dollars", and then complains about the guy (taking away your jobs, manipulating currency) while stuffing face, watching TV, and then sending toxic garbage to the neighbour for recycling. Who put a gun to your head and forced you to do that?

FWIW, Toyota manages to build cars in the USA that are mostly made in the USA (more US content even than cars from some "USA" car makers). So the US can build some stuff at competitive prices.

You guys can do better than this. What happened to the Land of the Free and the Home of the Brave?

Rate me down if you want, but it's all the truth- go google if you don't believe me.

RE: I'm sorry I forgot....
By ianweck on 10/25/2011 8:15:00 AM , Rating: 1
You're kind of a dick, aren't you?

RE: I'm sorry I forgot....
By aguilpa1 on 10/25/2011 2:50:27 PM , Rating: 2
While I tend to agree that most of his facts sound like crap, he has a point. There are far to many lazy Americans. I'm one of them but at least I'm skilled and educated and my career contributes to the technical infrastructure to where I can earn a decent wage.

However, I see hundred if not thousands of "Americans" waiting at the food stamp and unemployment line who look like they have never missed a meal in their life, driving nicer cars than me waiting for that government hand out off my tax dollar. Those same people that complain about people taking their jobs away but if they were offered a job picking crops from a field or washing dishes would rather stay at home. The illegal aliens don't mind doing those jobs but we would rather kick them out because they are to successful at it.

RE: I'm sorry I forgot....
By lyeoh on 10/25/2011 6:22:36 PM , Rating: 2
While I tend to agree that most of his facts sound like crap

And which of them are wrong?

The original post I was replying to was talking about China's currency manipulation. I was pointing out why that should not be a big deal from the US perspective.

As for the "fat slob" remark, I was mainly referring to the country, that's why I said "The USA now looks like a fat slob...".

Regarding your tax dollars, if the US Gov had passed some of the trillions of dollars created by the Federal Reserve to the US people, the cost of the "hand out" would be spread across you, China, and the rest of the world who hold US dollars. Creating US Dollars is just another way of "taxing" EVERYONE who holds or is owed net positive amounts of it. It makes what they have worth less. But who did they give the trillions to instead?

See the deal should be:
The world = Zimbabwe.
The US Gov = Robert Mugabe.
The US People = Mugabe's Friends
And whenever the US Gov creates money, the US People should get a cut, so the US Gov gets richer, the US people get a bit richer and the rest of the world gets poorer.

But recently that didn't happen right? Seems the US Gov is no longer a friend of the US People, and sharing the $$$ with them. So what should the US people do?

If the truth sounds like crap, sometimes that's because the situation really is crap.

RE: I'm sorry I forgot....
By lagomorpha on 10/21/2011 10:30:13 PM , Rating: 4
"Unions develop"

The Chinese are likely to be even less squeemish about using bullets to stop unions than early 20th century America was.

RE: I'm sorry I forgot....
By jvillaro on 10/22/2011 2:19:56 AM , Rating: 2
Yeah but step a little bit outside the mayor cities and be welcomed to the 12th century

RE: I'm sorry I forgot....
By nafhan on 10/21/2011 10:57:54 AM , Rating: 4
They're willing to live below "standardized" (whatever that means) middle class because it's way the f### better than being knee deep in a rice paddy, and they're hoping to improve things even more for their kids. There's actually a lot of similarities to the US in the early 1900's (and, yes, a lot of differences, too). I don't really like the Chinese government and a lot of things they do, but I'm happy that the standard of living for the Chinese people has been improving.

RE: I'm sorry I forgot....
By Ringold on 10/21/2011 11:18:26 AM , Rating: 3
CNBC ran a very, very amateur documentary a few times this year that talked to some sweat-shop girls and whatnot in China. They said pretty much exactly that. At least now they can afford better food and the occasional luxury item, might be able to marry up, and their kids might be able to enjoy better schooling. All superior to occasional hunger, poor housing, and toiling in rice paddies until, finally, death releases them from their worldly toils.

Wages are rising rapidly in China, anyway. A labor union supporter wouldn't understand it, but if China decided it wanted "standardized" (I must've missed the World Socialist Party Symposium that set a standardized middle class definition) middle class wages, they'd all be out of work.

RE: I'm sorry I forgot....
By Fracture on 10/21/2011 3:40:21 PM , Rating: 5
"Willing" is a funny way to put it since their government's policy of pegging the yuan to the dollar keeps their buying power and overall quality of life down, and dissenters like those in north China will be "neutralized".

RE: I'm sorry I forgot....
By Talcite on 10/21/2011 1:43:47 AM , Rating: 5
It's a jerk move, but OPEC has effectively been doing this since before the 90s with oil. The rare earth metals are also less critical to our infrastructure. It's not as if the country would grind to a halt tomorrow without it (whereas a lack of oil would be devastating). It's mild in the grand scheme of things.

I do agree it's strange to suddenly cut production to zero instead of scaling back though. It's almost as if they want to generate the negative publicity. Or they don't understand undergraduate economics.

RE: I'm sorry I forgot....
By Sazabi19 on 10/21/2011 8:04:03 AM , Rating: 5
More like they don't care. Who else are youg going to go to? The other 3% of refineries? Good luck not getting your orders filled for several weeks if not months. They know they have this market by the balls and they are just reminding everyone. We had stories on this not too long ago about how China had this kinda of control and how the US was worried about it. We still haven't done anything about it and now look at us. It seems we no longer learn.

RE: I'm sorry I forgot....
By jeepga on 10/21/2011 8:32:27 AM , Rating: 5
Apathy, arrogance... But, what they're doing is providing an incentive for competition. As stated in the article they have 30% of the reserves, so spike the prices and now the nations controlling the other 70% step forward.

RE: I'm sorry I forgot....
By Mitch101 on 10/21/2011 9:40:21 AM , Rating: 5
What this does is expose a single point of failure and when they inflate the price it provides incentive (Money to be made) in finding alternatives. Granted very difficult here.

This is just like the sheik who wanted oil prices lowered because science started to find way to eliminate the dependency because with $4.00 gallon gas there is money to be made in alternative solutions. At $1.00 a gallon there was no incentive to look at alternatives.

I have faith in Science you make rare materials cost enough then science finds a way to turn worms into plutonium. The problems is generally time.

RE: I'm sorry I forgot....
By mcnabney on 10/21/11, Rating: 0
RE: I'm sorry I forgot....
By Motoman on 10/21/11, Rating: -1
RE: I'm sorry I forgot....
By karndog on 10/21/2011 10:35:36 AM , Rating: 5
Ummm not true, China depends almost entirely on countries like Australia for their iron ore and coal, which are very much a critical resource for any country whos infrastructure is expanding at a rate as fast as China's.

I wish these countries would try and use these same tactics on China. Let them horde all the precious rare metals they want, they won't do them any good when they can't even build or power factories to make use of them, let alone power their homes and build their cars etc. But alas it won't happen in my lifetime. Multi national companies just look at the easy $$$ and ravage countries national resources while sending all the profits overseas.

RE: I'm sorry I forgot....
By Motoman on 10/21/2011 10:41:04 AM , Rating: 1
My point was that anything else they needed that they did normally import by sea they could get from Russia and/or other neighbors by land.

RE: I'm sorry I forgot....
By karndog on 10/21/2011 10:52:19 AM , Rating: 2
They could, but with China currently importing about 70 million tonnes of iron ore per month, and 90 million tonnes of coal per year, (expected to double by 2015) then it would look a little strange if Russia all of a sudden started importing an extra 80 million tonnes of iron and coal each month. Limits could be set on surrounding coutries so if they did decide to be a middle man to China, they would have to do so out of their own reserves.

RE: I'm sorry I forgot....
By mcnabney on 10/21/2011 12:13:42 PM , Rating: 2
I knew that China got iron from Australia, but coal is kind of a surprise. China is right behind the US with the second largest coal deposits in the world. I never thought that they would go to the expensive of moving coal across the ocean. Some european nations buy a lot of coal from south America, so I guess the short hop across the Coral Sea isn't too bad.

RE: I'm sorry I forgot....
By maven81 on 10/21/2011 11:51:50 AM , Rating: 5
China and Russia aren't exactly friendly. Russia is happy to sell them stuff to get their money, but don't think for one second they aren't worried about that border when there's a precedent for the Chinese trying to expand beyond it.

RE: I'm sorry I forgot....
By TSS on 10/21/2011 11:12:43 AM , Rating: 4
Your underestimating how far the rest of the world is behind. I read a bit into this a while back when china first announced it was cutting exports of these materials. The US did have it's own rare earth metal mines as well as canada and australia, but they where mostly *shut down*, because the chinese where basically flooding the market.

Now rare earth metals are hard to get out of the ground. There's a reason they call em "rare". You can set up a new mine, but it will take 10-15 years to get a new mine operational, let alone running at full speed.

So if the chinese spike the prices for a month, that's not going to do anything. Considering the chinese should already have cut their export volume of 2009 of these metals by atleast 75%, i'd almost guarrantee you mines in other countries are already rapidly being set up or expanded. But the amount of time that takes means that for the next decade atleast, the chinese can do whatever they want and the prices will move with them. Thats the price we pay as kapitalist countries beliving a communist country wouldn't corner the market if they got the chance.

RE: I'm sorry I forgot....
By Ringold on 10/21/2011 11:21:48 AM , Rating: 2
I've also read suggestions it can be comparatively heavy on pollution for whatever reason to extract them. That means any advanced democracy would have to go through all the convulsions and spasms of NIMBY/Green Peace anger to get anything done.

Good long-term opportunity for autocrats, middle-income democracies, etc., though.

RE: I'm sorry I forgot....
By BZDTemp on 10/21/2011 12:55:35 PM , Rating: 3
One of the place where there looks to be great chance of really getting the rare stuff from the Earth is Greenland. It's still early but the the prognosis looks good.

RE: I'm sorry I forgot....
By kingmotley on 10/23/2011 12:56:33 AM , Rating: 2
You mean the nations controlling the other 3%.

RE: I'm sorry I forgot....
By wookie1 on 10/21/2011 4:15:00 PM , Rating: 3
OPEC only controls about 1/3 of the world's supply. The US gets most of its imported oil from Canada and Mexico.

RE: I'm sorry I forgot....
By shin0bi272 on 10/21/2011 5:22:41 PM , Rating: 1
because clinton was a communist and the chinese people work for 2 cents a day.

RE: I'm sorry I forgot....
By YashBudini on 10/22/2011 3:21:54 PM , Rating: 2
That explains how it started, not why it's continuing, which is far more important.

RE: I'm sorry I forgot....
By ttaerum on 10/21/2011 6:37:04 PM , Rating: 3
It's quite remarkable but if you go to you will see that this plan was hatched back in 2008. Unfortunately, this Administration seems more concerned about challenges to their election bid than challenges to U.S. sovereignty. Most recently there was open bidding on Afghan resources and U.S. bids were no where to be seen. Instead, India and China were top of the list of bidders. It seems to me, if we're sacrificing blood and treasure, this Administration should also be doing their best to insure U.S. companies are the "most highly favored".

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