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China Drops Rare Earths Ban

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Here’s the update, per the New York Times:

The Chinese government on Thursday abruptly ended its unannounced export embargo on crucial rare earth minerals to the United States, Europe and Japan, four industry officials said.

The embargo, which has raised trade tensions, ended as it had begun — with no official acknowledgment from Beijing, or any explanation from customs agents at China’s ports.

Rare earths are increasingly in demand for their use in a broad range of sophisticated electronics, from smartphones to smart bombs.

Having blocked shipments of raw rare earth minerals to Japan since mid-September, and to the United States and Europe since early last week, Chinese customs agents on Thursday morning allowed shipments to resume to all three destinations, the industry officials said.

Note that while the ban has been reversed, the supply interruption has led to a price spike, and that may persist if China keeps supplies tight. From the Times:

Even with containers of rare earths once again leaving China’s docks, foreign buyers still face potential shortages. As China’s own industrial needs for rare earths have grown, Beijing has repeatedly reduced its export quotas for the minerals over the last five years. So even when China is shipping its full quotas, the outbound supply is now well below world demand.

Moreover, the tight export quotas have caused world prices to soar, even while holding steady in China.

There are two different ways to read this little contretemps, and readers can no doubt come up with other interpretations:

1. This was a successful shot across the bow of the US (the initial Japan freeze was in many ways directed as the US as welll because the US consumes far more of Chinese rare earths via Japanese intermediate and end products than via direct purchases from China, even if the immediate impact on Japan was more pronounced). The Treasury has backed off its pressure on China to have the renminbi appreciate more quickllyand is now supporting the idea of China coming up with longer term goals to rein in its trade surplus

2. This was a shot across the bow that failed. China only banned raw materials exports; it wanted to force encourage its trade partners to buy products manufactured in China with rare earths content. But instead, Japan immediately started to focus on recycling rare earths and redesigning products to use less of them; the Eurozone similarly started to consider accelerated development of alternative sources, rather than buying higher value added goods from China. This seems consistent with the fact that Secretary Clinton was make remarks about the ban; it was dropped literally hours before her speech, but the State Department has not gotten confirmatoin.

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25 comments

  1. Anon

    As far aa i could see, the rare earth exportcontrol is just a response to US- Japan’s coordinated military, political, diplomatic, economic and currency war fares launched against China over the last 10 months.

    1. alex

      “US-Japan’s coordinated … diplomatic, economic and currency war fares launched against China”

      That’s rich. I guess the big lie theory is still popular.

      As for the “military, political” stuff, what’s next? China already claims an absurd extent of the South China Sea, disregarding international law on the size of EEZ’s, especially when they have to be shared with other countries. What next, will China claim that Japan’s home islands are Chinese territory dating from the 3rd century BC or something? In all serious I’ve heard they’re working on a claim that Okinawa is actually Chinese territory. Oops, somebody forgot to tell the Okinawans.

      Hey, we Yanks know how to play that game too. 54-40 or fight!

      1. Anon

        The US has some 13% of the earth’s rare metal reserve. Why would the US has problems? I also read the US under the cover of it’s military survey the mineral wealth of Afghan and concluded there are some thrillions worth of minerals, including rare earth there. Why the pretentions?

        1. alex

          “The US has some 13% of the earth’s rare metal reserve. Why would the US has problems?”

          Because the US, like the rest of the world, was foolish enough to become dependent on Chinese RE’s as though China was a reliable trade partner. Thanks for the warning that this latest incident has produced.

          “I also read the US under the cover of it’s military survey the mineral wealth of Afghan and concluded there are some thrillions worth of minerals, including rare earth there.”

          Happy to be of service to the Chinese mining companies that are planning to exploit those mineral resources.

      2. Anon

        I hope the authorities take note of you so that you or your family could be drafted to the frontline the instance there is war.

        1. alex

          Best wishes to you and your family too, but why the belligerence? I was talking about a trade dispute and you mentioned military matters. Do you think trade disputes should turn into shooting wars?

  2. Richard Kline

    Here’s some addtional remarks out of China at the ministerial level on Thursday from an AP story:

    http://seattletimes.nwsource.com/html/businesstechnology/2013287200_rareearths29.html

    It will be interesting to see how much is actually shipped. Sending one ton is a resumption, but to manufacturers it will look like an embargo. A continued downward ratchet on export quotas seems likely while China looks to move rare earth dependent production onshore supplier by supplier. But one excellent outcome for China is that, having indicated it has rare earth consumers where it wants them, China can again reduce the price of production to the level which makes resumption of mining and production elsewhere in the world prohibitive except by governments. And we know that *cough* the US government doesn’t do production.

    1. Sufferin' Succotash

      “one excellent outcome for China is that, having indicated it has rare earth consumers where it wants them, China can again reduce the price of production to the level which makes resumption of mining and production elsewhere in the world prohibitive except by governments.”

      Reminds me of an an early Theodore Sturgeon short story: “Artnan Process”.

    1. tyaresun

      You need to be careful about believing anything written by Peter Lee. Search other articles written by “Peter Lee” in Asia Times and judge for yourself.

    2. Jim the Skeptic

      Peter Hofmann says: A totally different reading of this story: http://www.atimes.com/atimes/China/LJ29Ad02.html

      Thanks for the link. I don’t agree with the author’s opinions but the additional background on rare earth minerals was very helpful.

      The Chinese obviously lost since this sort of action will leave long term distrust in trade matters.

      Over time they will try to blame this on some errant official but only a fool would believe that. Iran used it’s “students”, but we all understood who was running the show.

    3. tcc1010

      I think this article is very helpful. I am not sure I believe everything in it but it does raise skepticism—and more importantly put into context—the NYT articles by Keith Bradsher which started this meme of the RE embargo. Even while I reading NYT stories weeks ago, I thought the source was a bit sketchy. —-and let face it, you & I seem to get most of these info from the NYT whether you admit or not.

  3. mtm

    This is pretty pathetic given that the export restrictions were put in place early this year and had no relevance to the political shitstorm over territorial disputes. Beijing has managed to let the Japanese spin the entire story about the Diaoyu and the REE in their favour. Beijing needs to execute their entire propaganda department and hire whoever the Japanese are using. At least somebody knows what there are doing.

  4. colin

    If you believe that the chinese have a finite and limited supply of RE, then the general trend will be more limited exports and higher prices of such. Again from the viewpoint of interested parties, why would china squander a valuable resource it has, and continue to sell it for dirt cheap without extracting some benefit (either political, economic or both).

    I don’t buy the argument of RE recycling being threat to the chinese at all. Seriously, how much RE is in each electronic part, and how much would you need to recycle to produce sufficient amounts?

    1. alex

      “how much RE is in each electronic part”

      Depends, unlike a lot of elements used in tiny electronic components, many RE’s are used in substantial chunks for magnets and electric motor/generator cores. Pull apart a Prius, for example, and you’ll get pieces at least fist sized.

  5. emca

    The only thing unexpected about this announcement is the quickness with which it has occurred. The bluff is over – for now.

    What remains are the substance behind appearances.

    China produces 97% to the world’s current demand of 134,00 tons; it contains 36% of known reserves of REE (Rare Earth Elements). While the dominate position China holds is most definitely a deliberate, success attempt made early to ‘corner the market’ on these commodities (aided in great part by the good ‘ol U.S. appetite for cheap goods), it is not sustainable.

    How early?

    In 1992, Deng Xiaoping, head of the country’s Communist Party, famously stated, “The Middle East has oil, China has rare earths.” Policy may stretch back as far as the early 1980′s (or even earlier).

    By 2014, World demand for REE will total 200,000 tons annual.

    Even given that by some estimates 2012 China’s domestic consumption will outpace China’s domestic production of rare earth minerals, China can be expected to supply 160,000 tons.

    There remains, even under that rosy scenario of no ‘unofficial’ embargoes, a shortfall in 4 short years of 40,000 tons.

    China’s REE is hers to use as she sees fit and as internal circumstances demand. The question is: what is the rest of the World, in particular the U.S., Japan, Europe and others going to do about it (well Japan is already spoken for above).

    The Mountain Pass Mine in the Mojave (owned by Molycorp, owned by Chevron) is one best known sources of high grade REE in the world (9.6%, Bastnaesite deposits) and the most prolific until it closed in the 90′s. Although its environmental laxity was “legendary”, that is not the cause of its closure (those issues having largely been resolved) rather an uncompetitive position brought on by China’s dumping a cheap exports on the World market (sound something like Walmart,eh?), in this case China’s trump card, REE’s.

    From Molycorp’s Jim Sims, “The economics wasn’t there because China had ramped up its production and was aggressively mining,”

    So where is Moutain Pass today?

    According to Sims:
    “The new facility incorporating these new environmental technologies will produce rare earths at a cost-per-pound that is one half of the Chinese,” Sims said, adding that the company hopes to begin mining again at Mountain Pass in 2012. Sims says the mine will produce 20,000 tons of REE-equivalent each year, more than the current U.S. demand of between 15,000 and 18,000 tons per year.

    Not all agree with the above statement’s timing, but Mountain Pass is not the only game in town, either in the U.S. or the world.

    Rare earth element reserves and resources are found in Colorado, Idaho, Montana, Missouri, Utah, and Wyoming. U.S. Rare Earth (U.S. company), although currently in a pre-feasibility stage of development, has a long-term potential owing to its large deposits in several of those states.

    Great Western Minerals Group and Avalon Rare Metals of Canada both have large quantities of REE (particularly high HREE potentials, which are considered the more valuable of the REE group) slated for mining (and production). This quote:
    “Thor Lake (owned by Avalon) is considered by some in the industry to contain one of the largest REE deposits in the world with the potential for production of heavy REEs”

    In Australia:
    “The Lynas Corp., based in Australia, has immediate potential for light rare earths development, according to investor analyst Jack Lifton. Development of Lynas’s Mt. Weld deposit in Australia is underway…”

    - etc.-

    Unfortunately the story does not end with the abilities to extract Rare Earth Elements. The processing, or value added component leading to consumer, military and other applications is the second key in the equation.

    In this, the U.S. is woefully lacking. While vertical integration, the supply chain, the unified process of bringing REE’s from mine to finished product has been proposed, little has taken place to wean the U.S. of its foreign dependencies. China not only has cornered the market on REE’s, but also the people schooled in the technology.

    Yaron Vorona, executive director of the Institute for the Analysis of Global Security’s Technology and Rare Earth Metals Center notes China has 100,000 rare earth scientists.

    What is the do-nothing (sic) U.S. Congress doing about all this? Among the proposed pieces of legislation: H.R. 6160, Rare Earths and Critical Materials Revitalization Act of 2010, H.R. 4866, the Rare Earths Supply-Chain Technology and Resources Transformation Act of 2010, S. 3521, Rare Earths Supply Technology and Resources Transformation Act of 2010 and H.R. 5136, the Fiscal Year 2011 National Defense Authorization Act (require the Defense Department to review the strategic importance of the REE supply chain and develop a plan addressing those findings).

    Not to take up any more time on this topic, most the information I sourced is here.

    -of interest is “Possible Policy Options”. The only remark I would emphasis here is the last insipid but hopeful line:

    “The federal government and private sectors are beginning to address how to secure reliable rare earth materials (raw materials through metals and alloys) from China and on – Chinese sources in the short term, and how to rebuild the U.S. supply chain for the long term.”

    (sorry for the long-winded post)

      1. emca

        The () comment was somewhat an internal gripe along the line of, “why am I wasting my time doing this” If someone is reading, well maybe I’m wrong.

    1. Sundog

      Thanks for the comment.

      US industrial policy is generally viewed in terms of preserving jobs or cossetting high-earners.

      More attention should be paid to maintaining industrial competence for reasons of national security.

      1. Crocodile Chuck

        “US industrial policy is generally viewed in terms of preserving jobs or cossetting high-earners”

        The US has no industrial policy. Unlike GER or Switzerland, companies themselves dictate ‘policy’ according to their narrow interests, ie there isn’t any.

        As for this ‘policy’ having its objective ‘preserving jobs’…do you know what’s happened to US manufacturing the last ten years?

  6. Thomas Barton, JD

    Third interpretation: collusive storm and fury by 3 disparate but intertwined economic partners; you volley, I volley, we all keep the ball whizzing through the air and the status quo is status quo for another day and a half and a half ad infinitum.

  7. ebear

    “China Drops Rare Earths Ban”

    Gee, who saw that coming?

    A few questions:

    Are REE’s the new Uranium? Does a run in REE stocks indicate a top in metals, the way Uranium has been known to do?

    If metal prices (including REE’s) don’t collapse, then do the big miners start producing REE’s as by-product? Seems likely, doesn’t it, especially if prompted by government? What does that do to the price and expectations already built in to junior producers & explorers?

    Molycorp. If persistent long term shortages are baked in the cake, then why did they go public? Why dilute, when you could finance at historically low rates with govt. backing? Hmmm. Maybe it’s not such a shoe-in after all?

    In a related vein, if these metals are costly on a unit basis, and only small amounts are needed, then why not synthesize them? Anyone here know what happens to the more common lanthanides when you irradiate them, pulse them with lasers, or expose them to neutron beams?

    As a political strategy, the Chinese gambit has EPIC FAIL written all over it. But maybe that’s not what it was? Maybe it’s a simple business strategy to run the price as high as possible because they know the stuff’s going to be dirt cheap in a few more years? They’re the ones with the metallurgical knowledge, remember? Maybe they’ve already synthesized the stuff and are just sitting on it?

    Just some random thoughts from a casual reader, but hey, what do I know?

    ebear

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