China - the OPEC of Rare Earth Metals

[GasBandit]

http://www.dailytech.com/China+Cuts+Off+Worlds+Rare+Earth+Metal+Supply/article23069.htm

The hand giveth, the hand taketh away - Chine cuts off world's rare earth metal supply

China only has about 30 percent of the world's rare earth metal deposits, but thanks to clever planning it today controls 97 percent of the world's production of these scarce resources. Deposits of this family of 17 elements -- vital to power electronics found in televisions, smart phones, electric vehicles, and a variety of other devices -- are found in California, Canada, Australia, and Russia, but it will take years to bring them online.

In short the world is at China's mercy for now when it comes to rare earth supply. And China's biggest rare earth metal producer -- the Inner Mongolia Baotou Steel Rare-Earth (Group) has announced that it is severing shipments to the U.S., Japan, and Europe for one month in an attempt to artificially inflate prices.

Inner Mongolia Baotou Steel Rare-Earth also plans to buy rare earth metals in an attempt to further move prices upward. The company already controls 60 percent of China's rare earth production, thanks to the Chinese government's decision to merge 35 other local companies into the Inner Mongolia business, or fade them out.

China controls 97 percent of the world's rare earth metal production.
[Source: Wikimedia Commons]​

While the Sichuan province in the southwest and Shandong in the east produce significant amounts of rare earth as well, the Inner Mongolia Baotou Steel Rare-Earth Group's decision should be enough to move prices significantly.

Doing so will benefit China in a couple ways. First, prices will almost certainly go up, reverse a downward slide. Lynas Corp., an Australian rare earth producer reveals that since June the price of neodymium oxide has declined 34 percent to $157 per kilogram, while europium oxide is down 35 percent at $2,904 per kilogram.

Sun Fan, a rare earth analyst for Goldstate Securities in the southern city of Shenzhen comments in a Associated Press interview, "The impact on the market supply will be substantial. The dual measures of suspension and purchase will offer support for the rare earth prices and make the prices gradually pick up in the future."

Aside from raising prices higher, the pause in production will allow China to try to kick start its efforts to produce locally produce magnets. When it comes to the production of the magnets used in the electric motors of hybrid and electric vehicles, typically the biggest profit is not realized at a commodity level, but at a magnet producer level. Thus in the past foreign nations like the U.S. and Japan have pocketed the biggest profits. China hopes to change that.

China hopes to supplant its U.S. and Asian rivals as the main producer of electric motor magnets, by choking resource supply to its foreign competitors. [Source: ThinkGeek]​

China's Ministry of Land and Resources in September bragged that rare earth metals were the nation's "21st century treasure trove of new materials." It argued that exports should be tightened, choking foreign supply and favoring Chinese manufacturers.

 

[Chibibar]

Ah so the Chinese is fighting back against the Tariff bill against China (i.e. control currency) against the U.S. If the bill is pass then the trade cost will go EVEN higher for these minerals (probably upward of 200% I'm guessing)

 

[Eriol]

It will stimulate mines in 1st-world countries to come back. That can't be a bad thing. It'll also mean that the materials will be produced in something-resembling good conditions for workers, rather than what China does.

This may be (probably will be) short-term pain, but for long-term gain.

 

[Chibibar]

It will stimulate mines in 1st-world countries to come back. That can't be a bad thing. It'll also mean that the materials will be produced in something-resembling good conditions for workers, rather than what China does.

This may be (probably will be) short-term pain, but for long-term gain.

It is possible. Maybe with the Bill and China's restricted output, the price would be high enough and profitable to mine in the U.S.

 

[Tress]

I sincerely hope that other areas of the world develop their own rare earth operations, then tell China to go fuck itself. I hope this blows up in their faces.

 

[Chibibar]

I sincerely hope that other areas of the world develop their own rare earth operations, then tell China to go fuck itself. I hope this blows up in their faces.

Well, I remember reading that some of these rare earth are pretty volatile stuff, but since China only have 30% of the world's resources but 97% market, it is possible that other countries can start producing it.

It is like Shale oil. It is out there and plentiful (in our own land in the U.S.) but expensive to process.

 

[AshburnerX]

1.) One month isn't going to do a huge amount of damage. Yes, prices will raise but they will also lower once exports resume. This is basically an experiment.

2.) This won't effect costs all that much anyway, as the US, Japan, and Europe will simple buy the materials through shell companies they have already established outside of their prospective countries, then have them shipped to their manufacturing facilities. Shipping costs will rise, but the exports won't as much as you'd think.

3.) Rare Earth Metals aren't as heavily traded as something like Oil. Thus speculator fluctuations (what causes Oil to go up any time OPEC has a hissy fit) won't effect it as severally.

4.) They are only going to encourage us all to re-open our mines, something the US was already considering in the first place.

Doing this is only going to hurt China.

 

[Necronic]

Ok, but here's what I don't understand about this:

1) China is restricting supply of rare earth minerals to increase costs for foreign purchasers. (anti export)

but

2) China artificially retards the growth of their currency, which decreases costs for foreign purchasers. (Pro export)

I guess this is a way for them to simply increase costs in resource/commodity exports without messing with the exports of finished products.

Also: Buy your new LCD monitors today.

 

[AshburnerX]

No, it's pretty much a pure vengeance thing. They need to save face in light of the recent tariff bill.

 

[Chibibar]

The government is starting to show its schizophrenia. I think ash has the gist of it but... we should also realize one of the crazy things that has been hapening in China is a massive increase in illegal mining operations ever since the government effectively shut down the housing market and development market when they made it incredibly difficult for people to buy more than one house. Right now there is a case of rich people being able to afford to buy a house, middle class people being able to rent a property and poor people being able to live in the evacuated bomb shelters that were made in the late 70's (ie the one under beijing that is able to hold something between 500,000 and 1,000,000 people) somebody else get the full facts I'm on coffee break.

According to the reports I have been reading (in Chinese sorry) a good chunk of that money is being diverted to illegal mining operations that are hurting the national suppliers of these products. so, I really don't understand why they think this would be a good idea unless if:

1) somebody in the government has been bribed to stop selling these minerals from the official SOE's so that the illegal and smaller mines are able to move in on the market.

2) somebody in charge of the SOE's (who traditionally get shit compensation for their work) is on the payroll of one of the illegal mines/ smaller private operations

3) everybody involved is so stuck in their antecedent ethnic programming that they absolutely have to save face by destroying the economy (not that the current government hasn't been doing this already. OMG house prices are rising fast, quick make it so that people who don't have millions in the bank cant buy property, OMG the price of pork is going up quick raise the central reserve rate to above 30% so that banks can't lend money to businesses, OMG inflation is still going up quick, make it so that companies can't get lines of credit from the banks by raising the reserve rate.)

honestly, China's economy is starting to strain at the seems, lets hope it cools down slowly.

Heh. It is not like the old days of trading and economy. China is trying keep their authoritative rule and capitalism. It is getting harder and harder since the world is getting smaller and smaller in terms of communication and technology. Even with limited internet, people are getting smarter and learning the outside world.