Beware: Gap in the Road Ahead: As the Chinese Government's Control of Its Domestic Minerals Market Tightens-Coupled with Environmental and Production Issues-There Are Fears That Demand for Rare Earths Will Outstrip Supply

Article excerpt

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Early this year it was reported that the China Tungsten Industry Association had announced that the Ministry of Commerce (MOFCOM) had issued the first batch of tungsten product export quotas to domestic companies for 2008. The announcement raised certain eyebrows in some quarters as www.resourceinvestor.com reported that the figure was down more than 10% when compared with last year's first batch of quotas. The website also reported that Chinese Government imposed export taxes varying from 5% to 15% on primary tungsten products on January 1 this year, including APT, tungsten carbonate, tungsten powder, ferrotungsten and scrap tungsten, as well as canceling export tax rebates on tungsten products.

China, of course, is the world's largest tungsten producer and exporter. To informed observers in the minor metals market the behaviour of the country in looking after its own resources is nothing new, especially when it comes to rare and minor metals, including Rare Earths.

But by looking after and protecting themselves, the Chinese are starting to cause the Japanese and Western companies that rely on these metals a few minor worries.

In the case of Rare Earths, in a bid to control supply and ensure the long term viability of its electronics manufacturing industries, China has introduced and, along the way cut, export quotas for these metals. For example, in 2004 the Rare Earths export quota was 48,500 tonnes. Last year it fell to 43,500 tonnes. At the same time Chinese export tariffs on Rare Earths have increased to between 15% and 25%.

It is not just regulatory constraints that are causing supply concerns from China, which supplies 95% of Rare Earths to the world. Its current largest mine, Baotou, is operating at its capacity limit and the quality of Rare Earth Oxide (REO) vary quite significantly between deposits. Other mines have to deal with severe environmental issues, while others face closure, strict mining quotas, or are shut down.

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As a result of these two aforementioned developments, questions are being asked about the sustainability of supply to the products which rely on Rare Earths and are undeniably a significant piece of today's technological age, not to mention the role they will play in the future.

"There's a small part of the investment community which understands the potential shortfall coming up," Nicholas Curtis, Executive Chairman of Lynas Corporation, says. "The companies which consume Rare Earths are very aware of it. But the broader investment community does not see this."

The importance of Rare Earths to people today

The use of Rare Earths is vital in technology to reduce green house gas emissions, to improve energy efficiency, as well as in many consumer electronics.

"Rare earths are vital to our society today," Dr Matthew James, Vice President of Lynas Corporation, says. "We are addicted to them. And many of their environmental applications are actually legislated by governments. The compact fluorescent light bulb [which relies on Rare Earths] is being mandated in the future in Australia, Europe, Canada and some parts of the USA, China has just announced a 50% subsidy on these light bulbs for the Chinese domestic market."

The light bulbs phosphors to generate the primary colours red, blue, and green are also used in CRT, LCD and plasma televisions, as well as computer monitors. Phosphors that generate the colour red require the Rare Earth element europium, for which there is no alternative--no europium, no colour TV.

Magnets, which use the Rare Earth neodymium, are much more powerful than alternatives, providing better performance from a smaller size which has lead to many of today's miniaturised applications. These small magnets are used in every hard disk drive in every computer, personal video recorder, MP3 player, video camera, and other consumer electronics where information storage is achieved using hard disk drives. …