Rare earths give China immense (and worrisome) influence (3/3): Rare earths demand

China , Commodities , Metals , Rare Earths May 02, 2012 No Comments

HybridIn this particular context of Chinese quasi-monopoly, the risk of an economic disaster is likely if this supply was to be put to the test. And this is precisely what has been happening for several years, and more explicitly since 2010.

Indeed, China has the will to move its workforce skills from upstream to downstream of many industrial sectors, and consequently has moved its rare earths production from simple mineral concentrates to industrial components such the magnets and phosphors to today finished products (computers, electric motors, mobile phones). Also, since 2007 it has protected its lanthanides domestic supply.

Ban on foreign direct investment, export taxes increase, price controls, freezing of mining licenses and industry integration into a few large companies controlled by the State are part of this protectionist trend, but the single most important measure is the one on export quotas. Introduced in 1999, they have been ruthlessly reduced during the last decade, including a dramatic drop of 40% between 2009 and 2010.

Following this tightening of Chinese protectionism, the European Union, the USA and Mexico filed a complaint with the WTO who ruled Beijing guilty of discriminatory restrictions on exports for nine commodities. The Chinese government then showed a sign of goodwill by doubling the export quotas of rare earths for the second half of 2011, from 8.000 to 16.000 tons for the same period in 2010. This turn of events should have allowed exports to be maintained at virtually the same level as the previous year, but was however deemed “extremely disappointing” by the European Union due to an increase in the number of commodities subject to quotas, resulting in 7 to 20% less quantities of rare earths exported.

The stakes are high: rare earths have become key components in developed countries industries, essentials to a multitude of industrial products, including applications for which demand will boom over the coming years, such as electric cars and wind turbines. The supply of these precious minerals is now in the hands of China, there will no longer be enough to satisfy everyone and this could threaten the green revolution.

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Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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