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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 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.


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