Proposed rare metal ban unlikely to impact market

In an effort to push up prices and reduce market disorder, China is planning a reshuffle of its rare earth metal industry, though analysts say it is unlikely to dramatically impact the market.

The reshuffle loomed when a draft report, Rare Earths Industry Development Plan 2009-2015, released by the Ministry of Industry and Information Technology (MIIT), reportedly proposed a total ban on overseas shipments of rare earth metals, including terbium, dysprosium, yttrium, thulium and lutetium.

China mines up to 95 per cent of the world's rare earth metals, a number of which are used in hybrid vehicles and wind turbines. Rumours of the proposed ban immediately upset the international market and pushed up the stock prices of several Chinese producers of rare earth metals.

But Wang Caifeng, a senior official at the department of industrial raw materials under MIIT, said at the annual International Conference on Rare Metals and Rare Earth held on 6 September in Beijing, that exports of key rare earth metals will not be prohibited.

According to Wang, China will continue to impose production and export quotas on the materials, which have been in place since 2004 to maintain the price of rare earth metals.

Despite the export quota and China's unique role in rare earth metal supplies, prices have historically remained low due to oversupply caused by too many producers.

According to Jeffrey Hogan, vice president of operations at Canada-based Neo Material Technologies, since 2004 the Chinese export quota has generally been greater than international demand. In 2008, demand slightly surpassed the quota restriction, reaching 48,193 tonnes against a quota of 47,011 tonnes, but prices still plummeted partly due to the financial crisis.

Central and local governments as well as big firms in the industry are proposing to form rare earth metal conglomerates to push out smaller producers and push up price with a controlled supply.

On 2 September, Zhao Shuanglian, vice governor of Inner Mongolia Autonomous Region, which is China's largest rare earth mining base, said that the regional government is forming a big conglomerate by acquiring and merging smaller players in western China. Zhao also suggested the central government form a national rare earth reserve system to stabilise the price by buying in when the market price is low.

MIIT is also organising a national association of rare earth industries to coordinate its proposed reshuffle. But Heng Kun, an analyst with Essence Securities, says reshuffles have been proposed many times in the past, and none has achieved the desired effects.

'No one [in rare earth mining areas] wants to give up their profits, and the production quotas have never been strictly implemented,' Heng told Chemistry World.

On the other hand, tightened export quotas – which are easier to implement – have increased the oversupply in the domestic market, further decreasing the price.

'We have to wait to see the effect of the reshuffle over a rather long period, which must combine several factors including developing super rare earth producers, strictly enforcing production quotas and limiting exports,' Heng says.