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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 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.


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