Categories: General Market Commentary
Topics: General Market Commentary

China cutting rare earth output, unnerving global manufacturers

LONDON/HOUSTON (Reuters) - The Chinese government is limiting domestic production of rare earth minerals in the second half of the year, a move likely to crimp international exports and send prices for the critical materials higher, according to data from Adamas Intelligence.

China is by far the world’s largest producer and consumer of rare earths, a group of 17 elements used to make electric vehicles and consumer electronics. The move is already forcing manufacturers to scour the globe for alternative supplies.

For the second half of 2018, China’s quota for rare earth separation and smelting has been cut 36 percent, an attempt to better control the market, according to Adamas, a research firm that closely tracks the rare earths industry.

China’s decision to limit domestic rare earth production to 45,000 tonnes for the second half of 2018 - announced in August and the lowest in more than five years - provides only enough supply for China’s domestic buyers, according to Adamas.

The semi-annual quota had risen to 70,000 tonnes in the first half of 2018, 40 percent higher than the first half of 2017. But that move was largely seen by analysts and electronics manufacturers as a step to legitimize black market production, with Chinese manufacturing consuming most of that supply.

While China is likely to attend to its own needs before exporting, increased exports would require the country to draw on already-low inventories of neodymium (Nd), prasesodymium (Pr) and dysprosium (Dy), used in electric vehicle motors, said Ryan Castilloux of Adamas.

Prices for one key rare earth mineral, PrNd Oxide, could increase by 10 percent to 50 percent within the next 12 months, and is on track to double in price within next five years as demand outpaces supply, Castilloux said.

Chinese exports typically supply around 80 percent of the globe’s rare earth needs, about 156,000 tonnes annually. Still, exports tend to oscillate wildly from month to month.

In September, for example, rare earth exports jumped 15 percent from August levels, despite slipping earlier in the year, according to Chinese government data.

The Chinese Ministry of Industry and Information Technology and the Ministry of Natural Resources did not respond to faxed requests for comment.

WTO FIGHT

China was accused in 2012 of manipulating rare earths exports after it put quotas on overseas shipments in 2010.

In 2012, the United States, the European Union and Japan filed a complaint with the World Trade Organization accusing China of slashing exports to hold down prices for its own manufacturers and to pressure global firms to move to China.

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