Rare Earths - Illustration of the Power of the Market Economy - Part 1

What are Rare Earth Minerals? Rare earths are a group of 17 chemically similar metallic elements, such as lanthanum, cerium, neodymium and europium. The elements are used in radar, high-powered magnets, mini-hard drives in laptop computers, catalytic converters for vehicles, electric-car batteries and wind turbines.

I never had the time to post about them, but now is the right time it seems, given the news flow.
In case you never heard about these minerals or didn't follow the story since last October, here are a few quotes from 2010.
Oct. 21 2010 (Bloomberg) -- Rare-earth prices have jumped as Chinese export quotas crimped worldwide supplies for the elements used in the manufacture of disk drives, wind turbines and smart bombs.

Prices have climbed sevenfold in the last six months for cerium oxide, which is used for polishing semiconductors, and other elements have more than doubled, according to Metal-Pages Ltd. in London, which tracks rare-earth prices.

Actions by China, which produces more than 90 percent of the world’s rare earths, have drawn criticism from U.S. lawmakers and officials in Japan and Germany. China reduced its second-half export quota for the minerals by 72 percent in July. It is now further restricting exports, according to industry participants.
China said the quota reduction was needed in order to shut polluting mines and still be able to meet domestic demand. It will “continue to supply rare earth to the world” while maintaining restrictions “to protect exhaustible resources and ensure sustainable development,” the Commerce Ministry said in a statement yesterday.

Contributing to the rise in prices is an expectation of further restrictions. China will probably tighten export controls on rare earths next year, Shigeo Nakamura, president of Advanced Material Japan Corp., said at a conference in China yesterday.

Rare earths are a group of 17 chemically similar metallic elements, such as lanthanum, cerium, neodymium and europium. The elements are used in radar, high-powered magnets, mini-hard drives in laptop computers, catalytic converters for vehicles, electric-car batteries and wind turbines.
Rare-Earth Furor Overlooks China’s 2006 Industrial Policy Signal
Oct. 22 2010 (Bloomberg) -- China’s curbs on rare-earth exports may owe more to a 2006 policy to create fewer, larger companies than a knee-jerk response to trade and territorial disputes.

A directive that year tagged mining among the pillar industries the government wanted state enterprises to dominate to enhance returns and global competitiveness. This year it started closing down private mining companies to consolidate the industry around a handful of producers led by Inner Mongolia Baotou Steel Rare Earth High-Tech Co.

Global repercussions from the overhaul drew attention in July when the government said it would cut export quotas 72 percent in the second half of the year. China accounts for more than 90 percent of worldwide production of the metals, used in components for Toyota Motor Corp. hybrid cars, Lockheed Martin Corp. radars and General Dynamics Corp. tanks.
The export cutbacks and China’s near-monopoly has prompted the U.S. government to seek to revive domestic mining and led German Chancellor Angela Merkel to call for expanded production in eastern Europe and Central Asia as an alternative supply.
Japan said China halted shipments of rare earths last month after a collision in disputed waters between a Chinese trawler and the Japanese Coast Guard led to the fishing-boat captain’s detention. Chief Cabinet Secretary Yoshito Sengoku said Oct. 20 that the import situation “hadn’t changed” weeks after the captain’s release.

Nobel Prize-winning economist Paul Krugman wrote in the New York Times on Oct. 18 that “the incident shows a Chinese government that is dangerously trigger-happy, willing to wage economic warfare on the slightest provocation.

China started to rein in mining of rare earths in May 2009, setting production quotas to help bolster prices. The caps and subsequent export restrictions did just that. Cerium oxide, used for polishing semiconductors, soared sevenfold in the past six months and other elements have more than doubled, according to Metal-Pages Ltd. in London, which tracks prices. The term rare earth applies to a group of 17 chemically similar metal elements that also include lanthanum and neodymium.
Race to Replace China’s Rare Earths May Take Decade — Remember this highlighted sentence; it's very important for the part2 of this story.
Oct. 26 (Bloomberg) -- China’s decision to curb exports of rare earths is set to spark a global race for alternative sources that may still take a decade to secure sufficient supplies, the head of the German commodities agency said.
We’re faced with a gap in rare-earth supplies that cannot be plugged overnight,” Steinbach said by phone ahead of a conference in Berlin today on securing commodity resources. “Realistically, bringing rare earths in volume to markets from new sites like Mongolia, Africa and Greenland may take five to 10 years.”

Germany joins Japan and the U.S. in calling on China to restore rare-earth exports after the Chinese government in July announced cuts in production of the elements used in everything from hybrid vehicles and flat-screen TVs to weapons systems. With demand for rare earths already forecast to outstrip supply, a scramble to secure substitute supplies is underway.

German Economy Minister Rainer Bruederle, whose ministry is hosting today’s conference, plans seven “strategic partnerships” to secure commodities, including rare earths and copper, according to two officials with knowledge of the matter.

The partner nations are Mongolia, Namibia, Nigeria, Kazakhstan, South Africa, Chile and Peru, said the two officials, who spoke on condition of anonymity because the plans are not yet public.

Safeguarding rare-earth supplies is “crucial” and Germany will forge partnerships with mining states to help do so, Bruederle said in a speech to the conference, without naming the countries.

The “ghost of protectionism” haunts global trade and China must realize that its policy is not a “one-way street,” he said.

China’s policy on rare-earth shipments is a sovereign right that doesn’t conflict with World Trade Organization rules, Foreign Ministry Spokesman Ma Zhaoxu said in Beijing today.

That stance won some support from the trade arbitrator’s director general, Pascal Lamy, who said the WTO has historically focused on combating import restrictions rather than exports, which “are nearer to sovereignty matters.”
China’s Rare-Earth Exports Plunge 77% After Quota Cut — Remember this highlighted sentence; it's very important for the part2 of this story.
Nov. 23 2010(Bloomberg) -- Rare-earth exports from China, the world’s biggest supplier, declined 77 percent in October from a month earlier after the government reduced shipment quotas for the second half.

Exports were 830 metric tons last month compared with 3,660 tons in September, the General Administration of Customs said in an e-mail. Total exports were 32,990 tons in the first 10 months, according to the e-mail, which was sent yesterday.
Japan, the largest rare-earth importer, has stepped up efforts to diversify supply sources, develop substitutes and recycle minerals from used products after shipments from China were disrupted in September.

Japan and Vietnam signed a deal to cooperate on rare earths, according to an October statement from Japan’s trade ministry, which didn’t give details. Mongolian President Tsakhia Elbegdorj earlier this month called for Japanese companies to invest in rare earths in his country.
Prices for rare earths will probably keep rising as new supplies won’t appear any time soon, Commerzbank said in its report. While China may “mitigate its position in the face of strong international pressure, supplies of rare earths are likely to decline further, with delays in the startup of envisaged projects,” the bank said.
Rare Earth Prices Double on China, Industrial Minerals Says
June 17 2011 (Bloomberg) -- Prices of the rare earths used in lasers and plasma televisions more than doubled in the past two weeks as China tightens control of mining, production and exports, according to market researcher Industrial Minerals.

The cost of dysprosium oxide, used in magnets, lasers and nuclear reactors, has risen to about $1,470 a kilogram from $700 to $740 at the start of the month, Industrial Minerals said in an e-mailed statement. Europium oxide, used in plasma TVs and energy-saving light bulbs, has more than doubled.

China, supplier of 95 percent of the 17 elements known as rare earths, has clamped down on rare-earth mining and cut export quotas, boosting prices and sparking concern among overseas users such as Japan about access to supplies. The government may further reduce export quotas, pushing prices higher, Goldman Sachs & Partners Australia Pty said last month.
Rare earths are used in wind turbines, hybrid cars and defense applications such as guided missiles. The market for the minerals may double to as much as $6 billion by the middle of the decade, according to an April 21 report by Ernst & Young LLP analyst Michel Nestour.

China’s Inner Mongolia Baotou region produces so-called light rare earths such as lanthanum, cerium and samarium. Heavy rare-earth production, concentrated in the south of China such as Ganzhou, includes the elements dysprosium, gadolinium and terbium.

The price of europium oxide, used for its phosphorescent properties found in plasma TVs and light bulbs, has risen to as much as $3,400 a kilogram from between $1,260 and $1,300, Industrial Minerals said.
Delays in rare earths projects coming on stream from the U.S. and Australia will ensure that China continues to be biggest producer until at least 2013, Sang Yongliang, a metals and mining analyst with Guotai Junan Securities Co., wrote in a June 3 report.

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