Resource Restrictions Not Rare

Oct. 17, 2009

 

China will restrict the uncontrolled exploitation and export of rare earth metals with the hope of protecting the environment

CNSPHOTO RED RESERVES: Rare earth produced in China waits to be loaded for export at Lianyungang Port in Jiangsu Province. China has the largest rare earth reserves in the world  China's Ministry of Industry and Information Technology (MIIT) has drafted a plan and related policies to develop the rare earth industry in 2009-15 and is now soliciting opinions from related authorities. China is a major global supplier of rare metals, where a variety of the rare resources are predominantly found. While China initially adopted a loose mining policy, the result was a chaotic industry whereby most of the rare metals were exported at low prices. To place stricter controls on the situation, the Ministry of Commerce (MOFCOM) and the General Administration of Customs listed the resources in the Catalogue of Prohibited Commodities in the Processing Trade in 2005. The decision limits foreign countries to buying only refined rare earth materials. In 2007, the National Development and Reform Commission and MOFCOM issued the new Catalogue for the Guidance of Foreign Investment in Industries, in which rare metals were listed among industries restricted from foreign investment. Mining companies and local governments were less than willing to give up the high economic gains from mining rare metals. Despite the MOFCOM regulations, cheap exports continued. As a last resort, the Chinese Government formulated stricter policies of controlling their exports. In April 2009, the Ministry of Land and Resources (MLR) issued a circular on controlling exploitation volumes of tungsten, antimony and other rare metals for 2009. According to the circular, MLR would not accept any application for exploration and exploitation permits for these rare metals. The policies have not gone unchallenged, arousing fierce reactions from many countries seeking to acquire rare metals. On June 23, 2009, the European Union and the United States sued China at the WTO for its restrictions. Reasons for restriction  According to MOFCOM, the main reason behind the restrictions of rare metal exports is not economic in nature, but rather focuses on protecting the environment and natural resources. But an article released on its website on August 26 offers other insights. The article states that Japan has been securing and storing resources from China through various channels. Statistics show that 83 percent of rare earth in Japan originated in China. While in no hurry to utilize the rare earth resources, Japan's acquisition shows the Pacific island nation's plan for future energy strategies. Seven rare metals are incorporated into the Japanese strategic reserve system, in effect since 1983, including nickel, chrome, tungsten, cobalt, molybdenum, vanadium and manganese. While keeping these resources in reserve, Japan is trying by every means to import more from all over the world, especially from China. In contrast, China's rare metals have been over-exploited over an extensive period of time, being sold far below their true value. Japan, the European Union and the United States have, and wish to continue, to buy rare metals from China at low prices. In 2005, China's output of rare earth resources accounted for 96 percent of the global total, with exports of these resources accounting for more than 60 percent of the world's total. However, the pricing power of rare earth was not held by Chinese companies. In the first half of 2008, rare earth prices declined sharply, with the price of crude ore decreasing from 76,000 yuan ($11,127.38) per ton to 64,000 yuan ($9,370.42) per ton. Prices of praseodymium oxide, a major type of rare earth, dropped from 220,000 yuan ($32,210.83) per ton to 135,000 yuan ($19,765.74) per ton. The drops resulted in China almost selling rare metals at cost. Cheap sales of resources have left their mark on China. Exploitation of rare metals has brought serious environmental pollution to mining areas, where dust pollution destroys surface vegetation. Around some mining areas, it is hard to find even the smallest blades of grass.

 

"It is inevitable that the Chinese Government adopts measures to prevent a resource drain and protect the environment," said Li Gang, a researcher at the Chinese Academy of International Trade and Economic Cooperation of MOFCOM.

Additionally, China no longer needs to reserve foreign exchange at any cost as it was forced to in past decades. In the late 1970s and early 1980s, China faced serious shortages of materials and foreign exchange. In 1978, China's foreign exchange reserve stood at only $167 million. The government explored any means necessary to encourage exports and increase China's foreign exchange reserve. Before the mid-1980s, primary resources became the largest exported products, with crude oil becoming the most important source of foreign exchange revenue. Non-ferrous metals, ferrous metals, electricity and coal also topped the list.

Not contrary to WTO rules 

Concerning the WTO legal action that the European Union and the United States have brought against China, Li thinks that China's restriction on rare metal exports does not violate WTO rules.

"In the multilateral trade system of the WTO, there are no strict regulations on how a country will restrict its exports. Moreover, in our protocol on the accession to the WTO, we didn't make such commitments," said Li.

In fact, China is not the only country that is strengthening its protection efforts on rare metal resources. The United States is home to a variety of mineral resources, with some of the largest reserves in the world. However, in order to protect its own resources, the United States has closed a large number of mines and adopted policies to import rare metal products from other countries. Since 1999, the United States has gradually ceased exploitation of its own rare earth resources. South Korea also decided to increase its rare metal reserves by means of cooperation between official and non-official channels.

"It's unreasonable for the United States and Europe to throw stones at China. All the countries are protecting their own resources, so why can't China?" Li continued.

Rapid economic growth has increased China's need for more resource reserves, but China has faced a shortage of natural resources because of over-exploitation.

According to statistics from the China Nonferrous Metals Industry Association, China's rare earth reserves have been reduced from 85 percent to 58 percent of the world's total. Almost all of China's black tungsten mines have run out, with only white tungsten providing enough for exploitation over the next 20 years. If exploited at their current rate, the country's molybdenum resources will only be enough for 16 years, stannum for 12 years, zinc for 10 years and antimony for six years.

Major Rare Metals in China 

Rare earth: Also called the "gourmet powder" of hi-tech industries. Adding rare earth to iron and steel as well as ceramics greatly changes the characters of these materials. Nuclear magnetic resonance imaging systems, hard disk drives, magnetically levitated trains and many other devices utilize rare earth. Rare earth is of considerable military significance because night vision devices, tank shells and airplane engines also rely on this material. China has the largest reserve of rare earth in the world.

Indium: It is mainly used in flat displays, semiconductor data transmission tools and the manufacturing of space products. China's indium reserves rank first in the world.

Tungsten: It is mainly used in products such as hard alloy and special steel, and is also widely used in mechanical processing. The defense and space industries utilize this rare metal, calling it the "tooth of the industry." China, with the largest tungsten reserves in the world, supplies 85 percent of the world's tungsten demand.

Germanium: It is mainly used in the production of night vision devices, heat vision devices, activators for petroleum products and solar cells. It is also widely used in the field of fibre-optical communication. China has the largest germanium reserves in the world, with its output accounting for 50 percent of the global total.

Molybdenum: It is mainly used in the smelting of alloy steel, stainless steel, heat-resistant steel and super alloys. Widely used in the military industry, it has earned the nickname of "the metal for war." China has the second largest molybdenum reserve in the world.