China Raises REE 2012 Export Quotas

The Ministry of Commerce said in a statement that it would set the second batch at 9,770 tons, resulting in a full-year quota of 30,996 metric tons. That’s 2.7% higher than last year’s 30,184 tons. The ministry typically issues the quota in two batches each year.

The second batch includes 8,537 tons of light rare earths and 1,233 tons of medium to heavy metals.

In a largely meaningless move, China has increased the 2012 rare earth export quota by 2.7% over 2011. It’s largely meaningless in the current slowing global economy, since importers and manufacturers already aren’t fully taking up the existing Chinese export quota. Where it might have some meaning is in Geneva at the World Trade Organisation, where America, the EU, and Japan are lead complainants against China’s discriminatory REE export regime.

Of more interest is that China is thinking about scrapping the export quotas entirely. Are they in fact minded to do it, or merely engaging in an exercise to see the likely implications for their domestic economy if they did? My guess is that in current the slowing conditions, abandoning the quota system would have minimal impact on demand or REE prices, or on China’s domestic economy. If conditions change and meaningful growth were to quickly resume in America and Europe, China would likely react by returning to a quota system, at least temporarily, although growth doesn’t seem likely in austerity wracked Europe anytime soon.

In the current global economy, where the future looks so uncertain at present, and new non-Chinese REE supply is just about at hand, REE buyers have little incentive to do more than buy REEs on a just in time basis. For the immediate future, the direction of REE pieces looks to be lower. Why buy now if tomorrow REEs might cost less? In some sense that’s a self-fulfilling policy, which reverses when the opposite is true. Welcome to the boom bust world of commodities trading.

August 22, 2012, 1:19 a.m. ET
China Raises Rare-Earth Export Quota
BEIJING—China has increased its 2012 rare-earth export quota for the first time since 2005, amid growing international pressure on Beijing to loosen its hold on the key minerals.

The country’s rare-earth export policies are closely watched as it controls 95% of the world’s production of the metals, which are crucial in a wide range of high-tech applications including defense systems, wind turbines and smartphones.

For the manufacturers that use rare earths, the quota increase is largely symbolic. Actual exports have fallen sharply, with exporters using up only around half of last year’s quota. Customs data Tuesday showed exports in the first seven months this year are down 37%.

—- “International pressure on China [to loosen export controls] has been quite high and the case has reached the World Trade Organization,” North Square Blue Oak analyst Frank Tang said. “The government already said last year that it would keep its quota largely unchanged in 2012, and it’s now signaling to the wider world not to worry.”

Beijing might be re-evaluating the quota’s usefulness, and has roped in industry experts for discussions on removing the cap, Mr. Tang said.
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