- Gold & Silver Update: Commercials Start Ringing the Cash Register April 30, 2017 The Doc
- Panic Bank Run Leaves Canada’s Largest Alternative Mortgage Lender On Edge Of Collapse April 30, 2017 The Doc
- Mere HOURS Away From $2,000 Gold & $60 Silver? April 30, 2017 The Doc
- April Sees Gold's Highest Month Average Since Oct, Silver's Best Since Sept. as India's Festival Buying Jumps April 28, 2017 Adrian Ash
- Gold Price 'Likely to Rebound' But Silver Tests 2017 Uptrend as Trump's Tax Plan Sees Stock Markets Drop April 27, 2017 Adrian Ash
- Trump's First 100 Days See Gold Price Most Closely Tied Ever to Dollar's Value in Yen April 26, 2017 Adrian Ash
China defends tough stance on rare earths
Beijing’s tough defense of its rare-earths export quotas is expected to escalate trade disputes over the minerals and spur mining investments—although China has strengths in the industry that are potentially long-lasting.
The U.S., the European Union and Japan Tuesday filed a complaint against China at the World Trade Organization over Chinese restrictions on shipments of raw materials, including rare earths, a category of 17 mineral elements and alloys essential to high-tech goods from iPads to the Toyota Prius hybrid car. The complaint, which will be ruled on around the end of 2012, demands that China remove its export restrictions or face trade sanctions. Some uses are more esoteric: Europium is an antiforgery marker in euro banknotes.
Xinhua, China’s state-run Chinese news agency, said in a commentary Tuesday the move could “trigger a backlash from China instead of settling the rift.” Xinhua said the move “may hurt economic relations between the world’s largest and second-largest economies.”
China Minister of Industry and Information Technology Miao Wei told Xinhua that Chinese officials “are actively preparing to defend ourselves.”
President Barack Obama announced the U.S. trade action, saying the U.S. will not allow other countries to get away with “skirting the rules.”
The WTO usually rules against export quotas, tradeexperts say, but whatever the outcome, the rare-earths trade dispute seems likely to escalate. “Beijing is likely to be preparing a fierce counterpunch, especially since China is in the midst of its own leadership transition and can ill afford to be seen as caving in to international pressure,” says Eswar Prasad, a Cornell University professor of trade policy.
China, which currently produces 95% of rare earths, up from 40% in 1995, has cut export quotas to around 30,000 metric tons a year from 65,000 tons in 2005, in recent years citing environmental concerns and a desire to keep the industry sustainable. The U.S. Defense Department estimates that rare-earth prices surged between four and 49 times compared with their values in current dollars in 2001. Prices have been easing in recent months, though they remain historically high.
Rare-earth production in the rest of the world is expected to match China’s output by 2020 as others ramp up mine production to counter China’s dominance.
Total global production, to be sure, is just over 120,000 tons, making it a market of only a few billion dollars, compared with 1.5 billion tons and a market of more than a trillion dollars for iron ore, steel’s main ingredient.
But high-tech firms need the minerals at affordable prices and have ferociously lobbied governments in Brussels, Washington and Tokyo—arguments that resonate as rare earths have numerous military applications, too.
China’s tight grip has also sparked a search for alternative rare-earth sources. Gareth Hatch, an analyst at research firm Technology Metals Research, counts more than 419 rare-earth projects in 36 countries. Shares in rare-earths-related companies, most of which trade on the Toronto Stock Exchange, rose Tuesday on news of the trade dispute.
So far, fewer than a dozen rare-earth miners outside China have emerged with the potential to produce between 10,000 and 40,000 tons a year this decade. Two of them, Colorado-based Molycorp Inc., which is reopening an old mine in California, and Australia’s Lynas Corp. are racing to bring their mines to full capacity.
Another four are expected to come online in about five years. Those include Frontier Rare Earths Ltd. in South Africa; Avalon Rare Metals Inc. and Quest Rare Minerals Ltd. in Canada; and Rare Element Resources Ltd. in Wyoming. “We’re starting to see things shake out,” says Randy Scott, the CEO of Rare Element Resources, which in January said that drilling had confirmed a 38% increase in reserves to 6.8 million tons. “We ramped up our efforts three years ago, but the permitting and regulatory work take time.”
Those six ventures are expected to result in around 120,000 tons in annual production capacity for the West, effectively doubling global production, according to surveys.
The industry has also seen mergers and consolidations following share-price weakness for the sector.
Last week, Colorado-based Molycorp said it would pay $1.3 billion for Toronto-listed Neo Material Technologies Inc., a company that transforms rare earths into materials used to make specialized magnets. In December 2011, Toyota Motor Corp.’s trading arm said it would form a joint venture with Matamec Explorations Inc., a Canadian firm, and buy all output from its Kipawa mine in southern Quebec, which is set to come on stream in early 2016.
Also in December, Korea Resources Corp. announced it would pay an estimated $24 million for a 10% stake in Frontier, which is based in Luxembourg but is developing a mine in western South Africa. That mine is forecast to produce 20,000 tons of rare-earth oxide a year starting in the second half of 2015, says Paul McGuinness, Frontier’s chief financial officer. Frontier is also building a separation plant for a total project cost of around $900 million. “You need to turn the rare earths into metals, and then alloys, then a magnet, before it even ends up in a product,” he says.
Such deals have added to cracks in China’s hold on production. But its manufacturing sector has made China the largest consumer of rare earths as well, and a fast-growing strength is its capability to process raw elements into usable materials. Such operations can produce radioactive waste that regulators in few other countries allow.
At least until 2016, says Mr. McGuinness, China will hold onto its dominance of global production. “That’s why you’re seeing big users like Samsung and Toyota looking to go downstream,” he says. “Our Korean partners don’t want to have to rely on China indefinitely for something that is so critical to major elements of Korean industry.”