Rare earths: China always one step ahead of the West

When news broke Thursday last week that China was raising REE export quotas for the second half of the year, ostensibly in reaction to a WTO ruling, it was greeted with some surprise and a measure of relief by the makers of anything from iPods to lasers to stealth helicopters.

But as the implications of the announcement on future pricing of the 17 elements begin to sink in some analysts are pointing out that rather than easing the pressure on manufacturers who need rare earths, China’s move was aimed at cutting off at the knees development of mining projects outside its borders.

Karon Snowdon and Dr Ting Ming Hwa, Asian Studies Centre, Adelaide University spoke on ABC Radio Australia on Wednesday about the consequences of China’s lifting of quotas:

SNOWDON: Although far from rare, the minerals are difficult to process and have varying degrees of radioactivity and other environmental problems. And China had lower standards and cheaper labour. But when China dramatically cut exports quotas last year and by a further 35% this year the price and the nervousness of its trading partners rose. They rushed to find new supplies. Now China has relaxed the quota, doubling exports back to 2010 levels – a move Dr Ting Ming Hwa from Adelaide University says is aimed at protecting its market dominance.

TING: And I would say this relaxation of quotas by China is perhaps to dampen the exploitation of other sources other than outside of China

SNOWDON: To protect their market share you’re saying?

TING: Yes. And by relaxing the quota it might just affect the prices of rare earths thereby undermining the investment in other countries and in the long run that would shore up the status of China in this industry.

Sally Lowder of The Critical Metals report spoke to Rick Mills on Tuesday. Here is what the respected investor said about the prospects of REE mining projects outside China:

A lot of deposits were considered 20 years ago. The Japanese using Sumitomo scoured the earth looking at REE deposits. Others, including Hecla Mining Co., did the same. But the metallurgy didn’t work then and still doesn’t today. It wasn’t a matter of price; it was simply too complicated, too time-consuming and way too expensive to remove the rare earths.

When you add that to a lack of infrastructure at many of these deposits, I just don’t see how these companies are going to be competitive in the marketplace. I look for mineralogy, metallurgy and location, location, location. To compete, you need all three.

A lot of deposits will be culled as people realize how much work it will take for a junior to move forward and fill that coming supply gap.

For an explanation of how the rare earth samarium is used in stealth helicopters click here.

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