Chinese QuotasThe World Waits for Chinese Rare Earth Quotas
By Michael Montgomery—Exclusive to Rare Earth Investing News
Lostin the tragic events of last week’s earthquake and subsequent nuclearmeltdown that focused the world’s attention on Japan, was a story thatwill affect the rare earth market more than any other factor: China’sexport quotas. China controls the entire supply chain of these metalsand trade policy has been becoming more and more stringent over the lastfew years, culminating last July when the nation slashed exports by 72percent.
Reports last week stated that the central government would bedetermining the exports for the second half of 2011; however officialshave not released on the date on which the quota will be announced.
Over the better part of the last decade, China has been quietlyreducing quotas by approximately 5 percent per year. However, last yearthat all changed. The government began slashing mining quotas, accordingto Chinese officials, in an effort to control environmentaldegradation. The change in trade policy has prompted governments andcorporations around the world to find, fund and secure supply of rareearth oxides.
The reports of the coming export quota are in true form, fairlyvague. “China will issue a second batch of rare earth export quotaslater this year, but the total volume for 2011 has yet to be decided…the decision on how much would be adjusted compared to last year was nowin the “last stage of research,” stated Chen Deming, Chinese Commerce Minister. The quota should be released mid-summer; around July if history serves as a guide.
There are as many speculations as consequences to the reasons behindthe massive departure in trade policy from China, and all of them have agrain of truth. China may be trying to entice foreign companies tobuild their wind turbines and high tech goods in China, creating higherpaying jobs, and they may well just be cashing in on the monopoly we letthem create by destroying their environment. It seems the economics of“cheaper is always better” has had its consequences, too. Now there isan increasing audible drum beat from the US, Japan and the EU callingfor a World Trade Organization (WTO) trade dispute over rare earths andother critical metals under China’s dominant control.
Another story buried in the headlines last week was about USrepresentatives in Congress and the Senate urging Interior Secretary KenSalazar and Treasury Secretary Tim Geithner to block Chinese miningprojects in the US and elsewhere precisely because of their rare earthpolicy. Some of the excerpts state the dominance and reliance on Chinesesupply are dangerous to national security and to the economy.
“China’s anticompetitive practices are exacerbating global supplyproblems at a time when world demand continues to climb… until Chinalifts its rare earths foreign investment prohibitions, we respectfullyrequest that you enforce reciprocal prohibitions with respect to Chineseinvestment in mineral exploration and purchase in the United States.The United States should not sit passively while China’s investmentpolicies hamstring U.S. companies and undermine our national andeconomic security needs,” stated the letter by Senators Debbie Stabenow (D-MI), Charles E. Schumer (D-NY), Robert Casey (D-PA) and Sheldon Whitehouse (D-RI).
Congress is also weighing the merits of the ‘H.R. 618Rare Earths and Critical Materials Revitalization Act of 2011.’ Thebill calls for the development of long term stable supply of rare earthoxides, it also appropriates $70 million over the next five years forresearch and implementation. The US Congress seems to be taking anactive role in advancing domestic rare earth production in the wake ofChinese policy.
The looming WTO trade dispute may pick up steam if China goes throughwith plans to build a stockpile of rare earths and other base metals,further reduce quotas, as well as become a net importer of rare earthelements in the coming years. “China may eventually need to import thematerials . . . There’s a strong possibility of importing heavy rareearths in the next three to four years,” stated Liu Junhua,deputy secretary for Baotou Rare Earth High-Tech Industrial DevelopmentZone Committee. He added that China has increased its consumption ofrare earths by 200 percent over the last 12 months. If anothersubstantial cut is made to export quotas, look for the WTO to weigh inon the subject.
China is leading the way in production of wind turbines and high techgoods needed for the future. Unless the US and the rest of the westernworld wants to hand over all the capital needed to create energy systemsand technology needed to compete in the 21
st century, it would be wise to speed up rare earth projects