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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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By thisisaname on 10/21/2011 1:11:13 AM , Rating: 2
It's just as much as our (the western world) fault for relying on China for all our goods, as it is them. But if this isn't a blatant act of aggression, than I don't know what is.

RE: Well
By Samus on 10/21/2011 4:32:16 AM , Rating: 5
We invested in Japan after World War 2 and turned them into the economic superpower they are now. In the 70's and 80's, we did the same thing for China by giving them technology and business. But they went about it in an entirely different way.

In Japan, they distributed the wealth and took pride in quality. In China, there is no middle-class; there are a wealthy few, and a majority that are lucky to eat a decent meal on a daily basis. They take no pride in quality because they have no reason too. close together, yet so far apart.

RE: Well
By zorxd on 10/21/2011 9:31:55 AM , Rating: 2
The income distribution in China and the USA is about the same (close GINI index). Which mean that if there is no middle class in China there must not be one in the US either.

RE: Well
By Kurz on 10/21/2011 9:35:04 AM , Rating: 2
Every Day Thousands of people enter the Middle class in China. Free Trade, the ability to choose who you conduct business without Government interfering greatly is the only way to have an even distubution of wealth.

RE: Well
By mcnabney on 10/21/2011 9:55:11 AM , Rating: 2
Which China are we talking about?

I was only aware of the China that held tight control of the economic reigns. Business owners are executed all the time if they do something wrong - this mineral extracting company most certainly had explicit approval from the party to do something like this.

RE: Well
By Kurz on 10/21/2011 10:36:19 AM , Rating: 2
The China we know today are not Free trade at all, besides Hong Kong. Though to ignore what Market forces does to an economy is shortsighted. Just like we tout our Free Trade, but in actuality it is gimped by the government.

RE: Well
By nafhan on 10/21/2011 11:02:32 AM , Rating: 2
Contrast China now with China 30 years ago. I'd actually say the "economic reigns" in China are looser than they are in the US. A lot of that is probably due to corruption and lack of needed regulation... but overall economic freedom is decent. Political and social freedom on the other hand, not so much.

RE: Well
By Ringold on 10/21/2011 11:29:12 AM , Rating: 2
People say that, but their weak property rights would make me nervous investing..

Then again, no guts no glory, right?

RE: Well
By shin0bi272 on 10/21/2011 5:25:45 PM , Rating: 1
how does it feel to be a communist? seriously I want to know. You just said "the economic reigns in china are looser than they are in the us" then proceeded to say that we need more regulation to fix the problems in the US. Hypocrite says what? Go drink some lye then play in traffic.

RE: Well
By someguy123 on 10/22/2011 5:38:01 PM , Rating: 2
I get the feeling he's referring to safety and quality regulations. Wasn't too long ago that they found lead leaked into products, and now there's that whole riffraff from CCTV about the massive amounts of pollution and waste being dumped by companies like Meiko and foxconn.

China's lean regulation is technically more free than what we have here in the states. Background damage to the environment is not something that can be easily fixed by market competition, though. Public perception is much more influenced by price than business practices.

RE: Well
By nafhan on 10/24/2011 10:16:41 AM , Rating: 3
how does it feel to be a communist?
that and the rest of your comment made me laugh! Anyway, since reading comprehension doesn't seem to be your strength, I'll clarify: the economic reigns in China are (at least arguably) looser than they are in the US. That doesn't mean it's a place I'd want to run a business, but it does mean if you ARE running a business there's a good chance you can get away with whatever you want (especially if you know the right people). Also, I was talking about corruption and lack of regulation in China, NOT the US... So, you can stop with the angry mouth breathing.

RE: Well
By YashBudini on 10/22/2011 3:26:32 PM , Rating: 3
Free Trade, the ability to choose who you conduct business without Government interfering greatly is the only way to have an even distubution of wealth.

I can't think of a single criminal who would disagree with this statement. There's a difference between a free economy and a "free-for-all" economy. Basic lesson ECO101.

Did you know congressmen are exempt from insider trading laws? Is that what you had in mind?

RE: Well
By chmilz on 10/21/11, Rating: 0
RE: Well
By mindless1 on 10/21/2011 12:15:31 PM , Rating: 2
If a product is represented as fit for a purpose, it's not the buyer's fault if that product is not actually fit for the purpose. Doesn't matter if it costs $200 or 5 cents, "buyer beware" doesn't hold water in legally binding agreements.

RE: Well
By mcnabney on 10/21/2011 12:18:47 PM , Rating: 2
I am sure there is someone in China waiting to take your job too. Since you are posting here you obviously aren't working hard. And of course, your replacement would accept a fraction of your salary. So next time you gripe about the American worker, be sure to hold up a mirror while you are talking.

"Intel is investing heavily (think gazillions of dollars and bazillions of engineering man hours) in resources to create an Intel host controllers spec in order to speed time to market of the USB 3.0 technology." -- Intel blogger Nick Knupffer

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