After being taken to the WTO this year over its export restrictions, China’s future dominance over rare earths remains uncertain, despite the recent establishment of a new rare earth trading platform and new regulations.
Long established as the world’s primary source of rare earths, China produces over 90 percent, and consumes 65 percent of the materials. The US Geological Survey estimates the nation has around half of the world’s reserves, but China claims the figure is only a quarter.
In the last two years China has imposed export quotas and price controls, claiming the actions are intended to conserve natural resources. But many consider the strategy to be economically motivated, aimed at using reduced supply to drive up prices, and allowing China to become a dominant force in the manufacturing of products requiring rare earths. The restrictions have made procurement increasingly difficult.
Matters came to a head in March when the US, Japan and Europe took China to the WTO, claiming its regulations violate free trade rules, with foreign companies paying up to twice as much as Chinese firms for rare earth metals.
According to European Union Trade Commissioner Karel De Gucht: “These measures hurt our producers and consumers in the EU and across the world.”
US Trade Representative Ron Kirk said: “China continues to make its export restraints more restrictive, resulting in massive distortions and harmful disruptions in supply chains for these materials throughout the global marketplace.”
But Chinese officials claim the controls are not trade protectionism and are necessary to protect the environment.
The WTO complaint alleges the export curbs pressure companies to move factories to China. Glassmakers requiring the rare earth metal cerium, used in glass colouring and polishing, and producers of of neodymium, used in energy-saving light bulbs, have increasingly shifted to China.
Michael Silver, CEO of advanced materials maker American Elements said: “We were supplying all the glass plants, and they were a huge operation in the US for over 100 years. But those operations have essentially all moved to China.”
One result of the restrictions has been to decrease rare earth demand. But the export curb has also led countries to seek alternatives to dependence on Chinese supply. Colorado mining company Molycorp Minerals is reopening and expanding its rare earth mine Mountain Pass, while Australia’s Lynas Corp is opening Mount Weld. These two projects combined will account for about a third of global demand. Japan is involved in a rare earth development project in Quebec, while Canada and India plan to resume rare earth mining.
Meanwhile Inner Mongolia Baotou Steel Rare Earth Hi-Tech Co., China’s largest rare-earth producer, has launched a physical-trading platform for the minerals which may increase China’s control over pricing.
China’s government almost simultaneously introduced new regulations requiring mines and smelting companies to meet minimum output levels for continued operation. This could result in 20 per cent of the country’s production capacity being shut down, with many mines and smelting companies unable to meet new standards. This may further inflame tensions at a time when the US and Europe expect to increase sales of products made with rare earths.
Nevertheless, with the WTO now having set up a panel to probe China’s rare earth export restrictions, China may have to amend its policies which could open up the rare earth market. But as the world relies less on China for rare earths, the WTO findings may have limited impact on prices.