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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.

Neodymium
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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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
Alternatives
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.


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