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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 Motoman on 10/21/2011 10:08:50 AM , Rating: -1
China doesn't need any critical resources from any other country. And they have a massive border with Russia, and other friendly countries, and they're going to trade all they want to. You could position the entire US fleet all around China's seashore, and it wouldn't make any difference.


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.


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