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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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What exactly do you expect from China
By p800asia on 10/21/2011 2:05:23 AM , Rating: 4
1. China keeps exporting at low prices: It is dumping its natural resources at its own environmental peril and killing our rare metal mining industry since we cannot compete in price.

2. China limits the production: China is trying to control the supply and price and suffocate our high tech industries.

OK when rare metals are cheap, we cannot reopen our mining factories. When the prices go up, we still cannot reopen them because of environmental concern and the red tape.
In short, nothing constructive will be done no matter what.

China has been talking about this issue for many years and is very clear that it doesn't want to exhaust its 30% world reserve.
You could blame them IF they actually had 97% of world supply, but not when the fact is some countries simply sit on their huge pile of rare metals, do nothing for the past few years but keeps complaining.

China was willing to sell them for cheap before doesn't mean it is obliged to do that in the future. Rare metals are natural, non-renewable resource after all.




RE: What exactly do you expect from China
By Kurz on 10/21/2011 9:42:01 AM , Rating: 3
All your compliants stem from Central Planning of Economies.


By bupkus on 10/21/2011 12:33:30 PM , Rating: 1
quote:
All your compliants stem from Central Planning of Economies.

Maybe you can get the "Swift Boat" people working on altering the outcome of China's Presidential elections?


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