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Home » Opinion » China Knowledge
Chinese wake-up call on rare-earth supplies
December 21, 2010, Tuesday
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Print Edition
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RARE earths are a collection of 17 metallic elements from the periodic table with tongue-twisting names like scandium, yttrium and dysprosium.
Not especially rare, they are strategically vital for many high-tech industries, and are among the few natural resources that China has in relative abundance.
Since it has become the de facto main supplier for almost all of these exotic metals, accounting for 97 percent of the market, China's control over their export can have far-reaching consequences for the global economy.
So when it was reported that in September that China ordered traders to halt rare-earth shipments and was reducing their export quotas, governments around the globe swung into action to ensure access to those commodities, which are needed to manufacture a host of goods - from catalytic converters and smart phones to wind turbines and electric vehicles.
No Chinese government official has gone on record saying the country had stopped shipments of rare earths, first to Japan and then to the US and the European Union.
China's minister of commerce, Chen Deming, insisted in a television interview on September 26 that his government had not imposed any restrictions on rare-earth shipments to Japan.
He maintained, instead, that Chinese companies might have done so on their own because of negative sentiment toward Japan.
Japan and the US have raised the issue with China at various international meetings, most recently during the Asia-Pacific Economic Cooperation forum in Yokohama, Japan, with little sign of progress.
For the moment, China appears to have the upper hand, given its status as holder of the world's largest reserves of rare-earth materials, with 36 million tons.
The Commonwealth of Independent States (CIS) has 19 million tons, the US 13 million tons and Australia 5.4 million tons, according to the US Geological Survey's "2010 Mineral Commodity Summaries."
Of particular concern are supplies of dysprosium, increasingly used as a magnet material in hybrid vehicle motors and magnetic disc drives for personal computers.
The story of how China became such a dominant supplier might sound familiar to companies in other sectors.
The country's ability to produce the metals at low cost, and tolerate the highly polluting mining methods involved, led it to overtake the US as the main supplier in the mid-1990s.
Left exposed
By 2002, the US' biggest producer, the Mountain Pass mine in southern California owned by Colorado Molycorp, had shut down.
Given the scarcity of alternatives, many manufacturers have been left exposed to potential supply disruptions, especially Japanese auto and electronics makers. Japan imports about 90 percent of the rare earths it uses from China.
In 2007, long before the current controversy, China began gradually reducing its rare-earth export quotas, seeking to exert stronger control over the industry.
In July, it suddenly issued a notice that its total export quota will be cut by 72 percent in the second half of this year, to 7,976 tons from 28,417 tons in the same period a year earlier.
As a result, the total export quota for 2010 is 30,258 tons, down 40 percent from 50,145 tons in 2009. China's total annual output is about 120,000 tons, the majority of which being used domestically.
With China's state-owned companies scouring the globe for supplies of oil, gas and other resources, China is obviously aware of the influence it can wield.
China maintains that its tighter export quotas are required to protect the environment and better regulate the industry. State media reports that the government may cut exports by another 30 percent in 2011, despite Commerce Ministry denials.
The ministry contends that if China keeps output at its current 120,000 tons a year, it will deplete its rare-earth reserves in 20 years.
With supplies shrinking, prices have been soaring. The price of cerium oxide, used for polishing semiconductors, climbed sevenfold in the six months to November 18 and prices for other elements have more than doubled, according to Metal-Pages in London, which tracks world metal prices.
The surge is a windfall for China.
Stockpile strategy
Although Japanese manufacturers are facing some supply shortfalls, the cut in shipments has not seriously affected them, since they have been stockpiling rare earths.
Japanese traders estimate that the stockpiles range from one month to a few years.
Sojitz, a major Japanese rare-earth importer, forecasts that Japan will suffer a shortage of 10,200 tons in 2011 even if China keeps its current export quota at 30,000 tons and resumes shipments.
China's policy has been carried out in such a way that importing countries have limited options to respond and are unlikely to be able to take complaints to the World Trade Organization (WTO).
While rare-earth prices rise in the short term, other countries with reserves are being spurred to bring production back on line.
Alarmed by the troubles with China, Japan is rushing to diversify its rare-earth suppliers, recently clinching agreements with Vietnam and Mongolia on joint rare-earth mining.
Tokyo allocated 100 billion yen (US$1.2 billion) to improving rare-earth supplies in its supplementary budget for the fiscal year ending March 31, 2011.
The funds are to be spent on overseas mining projects, research and development of alternative materials, and facilities for recycling rare earths from used computers, cars and cell phones.
All told, the rare-earth issue has raised awareness of the strategic implications of China's growing assertiveness and economic influence in other sectors.
(Reproduced with permission from Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. All rights reserved. Shanghai Daily condensed the article.)
Not especially rare, they are strategically vital for many high-tech industries, and are among the few natural resources that China has in relative abundance.
Since it has become the de facto main supplier for almost all of these exotic metals, accounting for 97 percent of the market, China's control over their export can have far-reaching consequences for the global economy.
So when it was reported that in September that China ordered traders to halt rare-earth shipments and was reducing their export quotas, governments around the globe swung into action to ensure access to those commodities, which are needed to manufacture a host of goods - from catalytic converters and smart phones to wind turbines and electric vehicles.
No Chinese government official has gone on record saying the country had stopped shipments of rare earths, first to Japan and then to the US and the European Union.
China's minister of commerce, Chen Deming, insisted in a television interview on September 26 that his government had not imposed any restrictions on rare-earth shipments to Japan.
He maintained, instead, that Chinese companies might have done so on their own because of negative sentiment toward Japan.
Japan and the US have raised the issue with China at various international meetings, most recently during the Asia-Pacific Economic Cooperation forum in Yokohama, Japan, with little sign of progress.
For the moment, China appears to have the upper hand, given its status as holder of the world's largest reserves of rare-earth materials, with 36 million tons.
The Commonwealth of Independent States (CIS) has 19 million tons, the US 13 million tons and Australia 5.4 million tons, according to the US Geological Survey's "2010 Mineral Commodity Summaries."
Of particular concern are supplies of dysprosium, increasingly used as a magnet material in hybrid vehicle motors and magnetic disc drives for personal computers.
The story of how China became such a dominant supplier might sound familiar to companies in other sectors.
The country's ability to produce the metals at low cost, and tolerate the highly polluting mining methods involved, led it to overtake the US as the main supplier in the mid-1990s.
Left exposed
By 2002, the US' biggest producer, the Mountain Pass mine in southern California owned by Colorado Molycorp, had shut down.
Given the scarcity of alternatives, many manufacturers have been left exposed to potential supply disruptions, especially Japanese auto and electronics makers. Japan imports about 90 percent of the rare earths it uses from China.
In 2007, long before the current controversy, China began gradually reducing its rare-earth export quotas, seeking to exert stronger control over the industry.
In July, it suddenly issued a notice that its total export quota will be cut by 72 percent in the second half of this year, to 7,976 tons from 28,417 tons in the same period a year earlier.
As a result, the total export quota for 2010 is 30,258 tons, down 40 percent from 50,145 tons in 2009. China's total annual output is about 120,000 tons, the majority of which being used domestically.
With China's state-owned companies scouring the globe for supplies of oil, gas and other resources, China is obviously aware of the influence it can wield.
China maintains that its tighter export quotas are required to protect the environment and better regulate the industry. State media reports that the government may cut exports by another 30 percent in 2011, despite Commerce Ministry denials.
The ministry contends that if China keeps output at its current 120,000 tons a year, it will deplete its rare-earth reserves in 20 years.
With supplies shrinking, prices have been soaring. The price of cerium oxide, used for polishing semiconductors, climbed sevenfold in the six months to November 18 and prices for other elements have more than doubled, according to Metal-Pages in London, which tracks world metal prices.
The surge is a windfall for China.
Stockpile strategy
Although Japanese manufacturers are facing some supply shortfalls, the cut in shipments has not seriously affected them, since they have been stockpiling rare earths.
Japanese traders estimate that the stockpiles range from one month to a few years.
Sojitz, a major Japanese rare-earth importer, forecasts that Japan will suffer a shortage of 10,200 tons in 2011 even if China keeps its current export quota at 30,000 tons and resumes shipments.
China's policy has been carried out in such a way that importing countries have limited options to respond and are unlikely to be able to take complaints to the World Trade Organization (WTO).
While rare-earth prices rise in the short term, other countries with reserves are being spurred to bring production back on line.
Alarmed by the troubles with China, Japan is rushing to diversify its rare-earth suppliers, recently clinching agreements with Vietnam and Mongolia on joint rare-earth mining.
Tokyo allocated 100 billion yen (US$1.2 billion) to improving rare-earth supplies in its supplementary budget for the fiscal year ending March 31, 2011.
The funds are to be spent on overseas mining projects, research and development of alternative materials, and facilities for recycling rare earths from used computers, cars and cell phones.
All told, the rare-earth issue has raised awareness of the strategic implications of China's growing assertiveness and economic influence in other sectors.
(Reproduced with permission from Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. All rights reserved. Shanghai Daily condensed the article.)
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