Report: China cuts off REE supplies for a month

Extraordinary news out of China: rare earth production is to be interrupted to put a floor under prices.

It seems that, contrary to all indications by previous official announcements, China’s rare earth sector is still far from orderly. Now we have an announcement made through the Shanghai Stock Exchange that indicates that Beijing has been unable to rein in illegal production and smuggling of REE, and that the government is again interfering in the market.

This news will send a shock wave through the industries that depend on rare earths – and underline the imperative for production of REE from other sources.

Reuters reports that China’s Baotou Steel Rare-Earth Hi-Tech is to suspend for a month all smelting and separation operations. The country’s largest REE producer is making the move to support prices which are now under pressure. The Wall Street Journal adds that prices of some rare earth oxides have fallen sharply in recent months. Chinese prices of neodymium oxide have fallen 35 per cent since June; praseodymium oxide has shed 17 per cent and lanthanum oxide 2 per cent in the period,

Reuters says this is not the company’s first attempt to underpin prices: last month Baotou bought an unknown amount of praseodymium and neodymium oxides at above market prices. Back on September 23, Reuters reported that China’s prices for neodymium and praseodymium edged up after Baotou said it will build up stocks and would buy the oxides at up to 900,000 yuan ($US140,896) per tonne.

According to the news agency overnight in reporting the suspension of operations, the REE sector within China is still in a “chaotic” state with illegal private production (for which read “smuggling”) is still a factor, and one considered to be responsible for the decline over recent months in REE prices.

The agency reports that China “ has imposed a national output cap of 93,800 tonnes for 2011, and has vowed to crack down on producers that exceed their quotas“. It launched a four-month inspection campaign at the beginning of August to ensure that production quotas, pollution standards and consolidation targets were being met.

It says the production is exceeding planned quotes by 40,000 tonnes a year – double the amount previously said to be smuggled out of the country.

This was filed from Sydney late Tuesday evening. RareMetalBlog.com’s Canadian HQ will update this story as further details come to hand.