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03.11.2010


Smuggling key factor in China's rare earth actions



29 October 2010



Widespread smuggling of rare earth materials and rapidly increasing domestic demands are key factors in China's recent moves to drastically reduce exports of the sought after elements.


In July, China, currently in control of almost the entire global rare earths market, announced a reduction of up to 72 per cent in its exports for the second half of 2010 compared to the same period last year. Despite its position as the world's major producer of rare earth elements, as the materials bleed out from the country, China has attempted to acquire other mines around the globe to maintain its control of the growing global market.


According to a report published by the Institute for the Analysis of Global Security (IAGS), a non-profit think tank in the US, China controls around 97 per cent of the global rare earth elements market and almost 60 per cent of all known global rare earth resources, which are needed to produce trillions of dollars worth of high-tech electronic goods including everything from smart phones to hybrid cars to wind turbines. 


Smuggling supplies 


Last year China's state-owned news agency Xinhua reported that as much as 20,000 tonnes or one-third of the total volume of rare earth elements leaving China in 2008 had been smuggled out of the country as a result of high prices in the legitimate market. Earlier this year, Xinhua  reported the arrest of seven suspects implicated in smuggling over 4000 tonnes of rare earth metals and compounds worth around Yuan109 million (£10.3 million). 


Smuggling is detrimental to the Chinese rare earth industry because it keeps prices low and depletes resources more quickly, causing supply problems for Chinese companies. Recently the country has been taking steps to gain more control over the industry by clamping down on illegal mining and smuggling, and reducing export quotas.  


'Even today, the Chinese rare earth industry has a large number of unofficial, sometimes even unknown, entities,' says Jack Lifton, a senior fellow at IAGS. 'This is the first time that China is trying to organise the industry because they want an accurate picture of how much [rare earth] they have and how much they produce.' 


Rare earths









China controls the majority of the rare earths market, causing supply concerns for other regions



Domestic demand 


Roderick Eggert, director of the economics and business division at the Colorado School of Mines, US say China's actions to reduce export quotas is understandable: 'The demand of Chinese manufacturers for rare earths has increased and China is merely acting like a private company would [to protect its interests].'  


A 2008 report by consultancy firm Industrial Minerals Company of Australia, suggested that China's domestic consumption would become equal to its domestic production of rare earth elements by 2012. Reviewing the projections in light of the economic slow down extended this timeframe to 2014. With a rapidly growing economy, satisfying domestic demand of rare earth elements has become a priority for China. 


Global acquisitions 


In 2005, Xu Guangxian, a renowned Chinese rare earth chemist, called for protective measures in the Chinese rare earth industry, saying that resources at some sites were in 'urgent need of protection and rational utilisation'.  


In the same year, China National Offshore Oil Corporation tried unsuccessfully to acquire Unocal, an oil company based in California, US for $18.5 billion (£11.6 billion). At the time, Unocal's subsidiary Molycorp Minerals owned the only rare earth mine in the US. If the bid had been successful, the Chinese firm would have gained access to the biggest rare earth mine outside of China. Molycorp closed the mine in 2002, but now plans to restart production in 2012. 


In early 2009, rare earths firm Lynas Corporation made plans to open a mining site at Mount Weld in southwest Australia. By May 2009, China Non-Ferrous Metal Mining Company had tried to acquire 51 per cent stake in Lynas but were unsuccessful due to intervention by the Australian government. 'In Australia, the Chinese did just not want a large stake in a mine, but they also wanted control. The Australians did not want this to happen,' says Lifton. 


Last year Jiangsu Eastern China Non-Ferrous Metals completed the acquisition of a 25 per cent stake in Arafura Resources, another rare earth developer in Australia. Arafura's operations in Australia are scheduled to start in 2013, with the company predicting annual production from its Whyalla site near Adelaide of 20,000 tonnes of rare earths - around 10 per cent of the world's supply. 


China is now also actively trying to develop mines in unregulated markets such as in West Africa, says Lifton.   


Akshat Rathi   



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