China to issue rare earth special tax permit to regulate overproduction

April 26, 2012 (Source: Platts) — China will start allocating value-added tax permits to rare earth companies in Sichuan and Inner Mongolia from May 1 in a bid to regulate overproduction of the mineral, sources told Platts Thursday.

Companies that have received notification from the government said this tax permit will be issued by the State Administration of Taxation.

“The special invoice has a two-dimensional code, and will be needed by any producing company [in order to continue operations],” said a source with China Minmetals Rare Earth Co., which received the notice early this week.

The permit is only required for the production of light rare earth, including concentrates and isolation oxides, the source added.

The permit is regarded as the first step taken by Beijing to control overcapacity, illegal mining, resource drainage and pollution of mines in the rare earth industry, market observers said. 

Some industry insiders are waiting to see what impact such a move would have on rare earth output. “The new rule will help regulate the market supply to some extent, as rare earth producers will need to sell their finished products according to their output and export quotas in accordance with the new special invoice,” a Shanghai trader told Platts Thursday.

For example, a plant with a production capacity of 1,000 mt of light rare earth concentrates, is only allowed to sell 450-500 mt of rare earth oxides that can be produced from the concentrates under the new special invoice. If a company sells more than they are allowed to produce, that might mean they are underreporting or obtaining output from elsewhere and selling illegally. In the meantime, their export quotas should also be in line with the total production output.

China has announced production caps, stricter environmental standards and an export quota system for rare earth metals in recent years, in an attempt to protect the development of the industry.

“We believe it is a start that China will undertake to regulate the country’s rare earth production, however there is a long way to go,” the source added.

China accounts for about 97% of world output of the 17 rare earth metals crucial for the defense, electronics and renewable-energy industries and used in a range of products such as smartphoones, disk drives and wind turbines. But its reserves only account for about one-third of the world’s total.

China has produced about 120,000-130,000 mt of rare earth oxides in 2011, and the production of 2012 is expected to be the same, market observers said.

Chinese limitations on rare earths production have proved controversial. The US and other countries have accused China of restricting its rare earth exports for political purposes, while China has maintained that its own manufacturing industries require growing quantities of rare earth resources.

The US, EU and Japan met in Tokyo last month for discussions after the three complained to the World Trade Organization that China was monopolizing supplies. 

Rare earth reserves in Sichuan and Inner Mongolia are relatively centralized and easy to supervise, while the reserves in Fujian, Guangdong and others regions are scattered. Market observers believe the trial in Sichuan and Inner Mongolia could well result in the authorities extending the move to the whole country.