Categories: Precious Metals
Topics: General Precious Metals

China predicts rare earths shortage

China predicts rare earths shortage

By Patti Waldmeir in Shanghai and Peter Smith in Sydney

Published: September 3 2009 16:03 | Last updated: September 3 2009 16:03

China on Thursday predicted a domestic shortage of some minerals needed to produce green and high-technology products, exacerbating concerns that Beijing may tighten its stranglehold on global supply of so-called rare earth elements.

China, which supplies about 95 per cent of the global rare earths market, is considering plans to clamp down further on export quotas for the valuable minerals used to produce everything from hybrid cars to iPod music players.

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Export quotas for rare earths have been cut for the past three years, but Beijing is now considering a plan for much sharper curbs which could leave multinational companies scrambling for other sources to supply their own growing needs.

Wang Caifeng, an official of China’s Ministry of Industry and Information Technology, told a conference in Beijing that domestic demand for dysprosium and terbium may outstrip supply, but she denied reports that China is considering a ban on some rare earth exports.

Her comments came as Australia demonstrated its concern that China may be trying to dominate rare earth supplies beyond its borders as well. Australia’s foreign investment regulator has delayed for the second time China Nonferrous Metal Mining’s proposed A$470m ($395m) investment in one of the country’s leading rare earths mining projects.

The Chinese state-owned enterprise agreed to pay A$252m for a 51.6 per cent stake in Lynas in May and also promised to provide access to US$184m (A$221m) of debt to allow the Australian group to develop its Weld Range project in Western Australia, one of the world’s richest rare earth deposits.

Nicholas Curtis, Lynas executive chairman, said the deal would “increase global supply and diminish concentration of supply out of China”.

Foreign suspicions of Beijing’s plans for world domination of rare earths have been fed by comments from no less than Deng Xiaoping, the former Chinese leader who said in 1992 that while the Mideast had oil, China had rare earths.

But foreign and Chinese industry sources doubt Beijing’s dominant goal is to create an Opec-like price cartel. After flooding the world market with cheap rare earths for more than a decade, Beijing now wants to ensure that it has the materials it needs to feed its own growing ambitions to build advanced and green technology industries such as electric vehicles.

Inner Mongolia, which contains 75 per cent of China’s rare earth deposits, said earlier this week that it wanted to build a strategic reserve of rare earths to stabilise prices. It also wants to consolidate the local industry. The aim, according to Inner Mongolia officials, is to conserve reserves and attract more users to set up manufacturing plants in Inner Mongolia.

Rare earths have been sold too cheaply, and some traders have sold supplies illegally overseas, threatening domestic supplies and causing over-exploitation and environmental problems, according to an official of the Chinese Society of Rare Earths.

Just cutting production, without a strategic reserve to boost price, will be hard for central government, because that will hurt profits of some state-owned firms and local governments, analysts say.

Further Chinese export curbs could stimulate production outside China, industry experts said. According to a 2006 survey by the US Geological Survey, 43 per cent of global rare earth reserves are outside China, though few are currently being exploited.

Additional reporting by Shirley Chen in Shanghai and Yang Jie in Beijing