China to reduce rare earth export quotas by 30 percent in 2011

A story has been published on the China Daily online website today stating that China will further reduce quotas for rare earth exports by 30 percent next year to protect the precious metals from over-exploitation.

An official from the Chinese Ministry of Commerce said that the country is now facing the possibility that reserves of medium and heavy rare earths might run dry within 15 to 20 years if the current rate of production is maintained.

Export quotas will continue to be axed in the first half of next year, said the source who declined to be named.

China, which produces 95 percent of the world's supplies, has reduced 2010 production levels and slashed export quotas by 72 percent for the second half to 7,976 tons, according to ministry data.

Rare earths, composed of 17 elements, are used in a number of high-tech processes ranging from wind turbines and hybrid cars to missiles.

According to Chao Ning, section chief of foreign trade with the ministry, domestic deposits dropped to 27 million tons by the end of 2009 from 43 million in 1996, representing 30 percent of the world's total explored reserves.

Medium and heavy rare earth, also known as ion-absor bed-type rare earth, is more valuable than the lighter variety and is used in advanced areas such as missiles.

China's verified reserves of ion-absorbed-type rare earth stood at 8 million tons in 2008, while reserves of light rare earth totaled 50 to 60 million, according to data from the Ministry of Land and Resources.

"China is not the only country that has these deposits, but it has been dominating the world's supply market for more than a decade, thereby depleting its own resources," Chao said.

He added that strategic, environmental and economic considerations mean that the country can't afford to continue shouldering the burden of supplying the world.

Some developed countries such as the United States, which alone holds 15 percent of the world's reserves, depend almost entirely on Chinese supplies. They ceased domestic production long ago because importation is more cost effective.

Prices in China rose by fractionally more than 20 percent since 1979 to hit an average of $8,500 per ton in 2009. Prices started to pick up in the middle of that year as the government began to reform the industry by cracking down on illegal mining practices and by reducing exports.

Some of the major rare earth oxides, such as neodymium, had rallied to 24,600 yuan a ton by the end of September, a rise of 80 percent from January.

Japan is the main importer of rare earth oxides, accounting for about 17 percent of the market, while China uses 51 percent internally.

A massive surge in the share price of rare earth stocks is anything but rare at the moment. One company that is benefitting from the reduced quotas is Lynas Corporation (ASX: LYC).

Lynas owns the richest known deposit of Rare Earths outside of China at Mount Weld in Western Australia and the company is progressing well with plant construction to be in a position to commence supply in Q3 2011.

Lynas reported a new price high of US$16.56/Kg was reached on 7 June 2010 for the average Mount Weld Rare Earths composition on a FOB China basis.

On July 9, Lynas reported that the total China export quota for 2010 (30,259 tonnes) is 40% less than the total export quota for 2009 (50,145 tonnes).

Currently, only a few facilities process rare earth oxides outside China, accounting for less than 10 percent of the market.

The tightening of supply regulations provides additional opportunity for Lynas to meet the supply deficit outside of China.