China Slashes Rare Earth Export Quotas, Cracks Down On Illegal Mining

Rare earth elements are used in iPhones, iPads, hybrid-electric cars, wind turbines, flat-panel monitors, tiny magnets in the fins of bombs, missiles, laser-guided smart bombs, and a myriad of other industrial applications.

China cut exports last summer, then totally blocked exports to Japan last September in a border dispute with Japan and now has reduced export quotas again by 35 percent.

There is growing concern about this problem at the Pentagon and by manufacturers for obvious reasons. Please consider China's rare earths export cut spurs trade concerns

China's move to slash export quotas on rare earth minerals -- vital in a slew of high-tech products -- has raised fresh international trade concerns, and Japan's Sony Corp vowed on Wednesday to reduce its reliance on the minerals.

China, which produces about 97 percent of the global supply of rare earth minerals, cut its export quotas by 35 percent for the first half of 2011 versus a year ago, saying it wanted to preserve ample reserves. It also cautioned that it has not decided on the quotas for the second half of the year.

The little-known class of 17 related elements is used in numerous electronic devices and clean energy technology.

Sony, maker of Bravia brand flat TVs, Vaio PCs and the PlayStation 3 videogame console, will look for ways to cut its use of rare earth elements, including developing alternative materials, Iguchi said.

Prices have surged for these minerals since authorities in Beijing slashed their rare earth exports by 40 percent this summer, saying China needed them for its economic development.

Crackdown on Illegal Mines

It's not that rare earth elements are that rare, but supply of the metals is limited because of production concerns, especially pollution. Unauthorized mining operations account for as much as 50% of China's rare earth exports, leaving sulfuric-acid poisoned streams and land in the wake. Over such concerns Illegal Rare Earth Mines Face Crackdown

China’s national and provincial governments [have started] to crack down on the illegal mines, to which local authorities have long turned a blind eye. The efforts coincide with a decision by Beijing to reduce legal exports as well, including an announcement by China’s commerce ministry on Tuesday that export quotas for all rare earth metals will be 35 percent lower in the early months of next year than in the first half of this year.

Rogue operations in southern China produce an estimated half of the world’s supply of heavy rare earths, which are the most valuable kinds of rare earth metals. Heavy rare earths are increasingly vital to the global manufacture of a range of high-technology products — including iPhones, BlackBerrys, flat-panel televisions, lasers, hybrid cars and wind-power turbines, as well as a lot of military hardware.

China mines 99 percent of the global supply of heavy rare earths, with legal, state-owned mines mainly accounting for the rest of China’s output. That means the Chinese government’s only effective competitors in producing these valuable commodities are the crime rings within the country’s borders.

Prices have soared for rare earth elements mined almost exclusively here in the red clay hills of southern China: dysprosium, terbium and europium. According to a new United States Energy Department report, the most important of these for clean energy is dysprosium. Its price is now $132 a pound, compared with $6.50 a pound in 2003.

In the last few months, the government has deployed helicopter patrols to spot illegal mines. Teams of dozens of police officers have conducted raids into the hills of northern Guangdong and arrested at least 100 owners and managers of rare earth mines and refineries, said a Chinese mining expert who insisted on anonymity because of the issue’s political risks. Government workers equipped with blowtorches have accompanied the police to cut apart illegal mining equipment and either seize it or distribute it to peasants for sale as scrap.

The gangs have terrorized villagers who dare to complain about the many tons of sulfuric acid and other chemicals being dumped into streambeds during the processing of ore. Illegal rare earth mining and chemical runoff have poisoned thousands of acres of prime farmland, according to the government of Guangdong Province, and have been blamed for many illnesses.

It's nice to see this concern over pollution, but cynically, I cannot help wondering if the real goal of this crackdown is to raise prices or secure favorable trade agreements.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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