China sees limit, but no ban, on rare minerals

China rare earth exports face policy shifts as Beijing reviews quotas and potential bans on dysprosium and terbium, stirring WTO scrutiny and supply chain risks for high-tech magnets, motors, and electronics manufacturers.

Chinese officials said that they would tightly regulate production of two minerals vital to manufacturing hybrid cars, cell phones, large wind turbines, missiles and computer monitors, but that they would not entirely ban exports.

China produces over 99 percent of the world’s supply of dysprosium and terbium, a share that reflects a near monopoly on elements in these markets, two rare minerals essential to recent breakthroughs in high-technology industries.

A bureaucratic reshuffle in Beijing this year prompted a review of Chinese policy, and new regulations were drafted that would entirely ban the export of these minerals. That has triggered anger and dismay from Western governments and multinational companies that depend on Chinese supplies.

Wang Caifang, deputy director general of China’s Ministry of Industry and Information Technology, tried to allay concerns that the draft rules would become the final policy, saying the regulatory review is still underway.

“China is very responsible; we will not take arbitrary decisions. All our decisions will be consistent with scientific development,” she said in a speech at the Minor Metals and Rare Earths 2009 conference here. “China will not close its doors.”

In an interview after her speech, Ms. Wang said that China would continue to set an annual quota for the export of each mineral, adding, “I don’t think it will be zero.”

Dysprosium and terbium are two of the most valuable, scarcest and most sought-after minerals among the 17 rare earth elements. China mines 93 percent of the world’s rare earths, which have a wide range of obscure but crucial industrial applications from making ceramics to stainless steel.

A copy of the draft rules said China would further reduce its combined annual export quotas for all rare-earth elements to 35,000 tons a year, from 53,000 tons last year and almost 66,000 tons as recently as 2005.

The draft policy also clearly stated that exports of dysprosium and terbium are to be prohibited along with exports of three other rare earth elements: thulium, lutetium and yttrium. But Ms. Wang seemed to back away from this.

By cutting exports, as well as putting a total tax of 42 percent on exports of dysprosium, terbium and some of the other rare-earth elements, Beijing officials have successfully forced manufacturers of advanced magnets, motors and other technologies associated with green power in China to move their factories to China, where the minerals are readily available.

Ms. Wang called for further development in China of high-value industries using rare earths, as the country’s clean energy sector continues to expand.

China and Australia have been locked in a tug-of-war this summer over minerals. China accuses Australia of being too aggressive in trying to maximize the value of its iron ore reserves, and has detained four Rio Tinto iron ore executives in China, accusing them of bribery. Rio Tinto has denied its employees broke the law.

But China has also tried to increase its control over the rare-earth market, and Chinese industry officials have complained publicly in recent weeks that Western countries do not pay enough for their supplies, even as U.S. officials pursue a clean energy trade mission to China to deepen cooperation.

State-owned Chinese companies are in the process of buying large stakes in two Australian companies developing rare-earth mines: a 25 percent stake in Arafura Resources, which the Australian government has already approved, and a nearly 52 percent stake in Lynas Corp., which the Australian government is still reviewing.

Early this year, the Chinese government’s semi-independent Office of Rare Earths was put under the clear supervision of the Ministry of Industry and Information Technology. The ministry has close links to domestic Chinese industries and a history of policy activism with minimal public consultation.

With little warning, the ministry tried early this summer to require that filtering software be installed on all computers sold in China. In the face of heavy international and domestic criticism, the ministry retreated a day before the policy was to take effect.

Ms. Wang has played a central role in Chinese policymaking on rare earths for many years. But there has been persistent speculation in the Chinese mining industry in recent months that she might retire following the recent bureaucratic reshuffle. Ms. Wang told reporters after her speech that she was not ready to retire.

Retirement by Ms. Wang could introduce more uncertainty into the management of China’s rare-earth industry and complicate planning for foreign companies that need those reserves.

Governments and companies in the West and Japan have become increasingly worried in recent weeks that China could halt exports of rare-earth elements, and U.S. policymakers have turned to measures like the Pentagon’s Buy American solar push to bolster supply chains. Susan Stevenson, a spokeswoman for the U.S. embassy in Beijing, noted that World Trade Organization rules strongly discourage export restrictions.

“We would be concerned by any WTO member’s policies that appear to be inconsistent with its WTO obligations,” she said.

On June 23, the United States requested formal consultations with China at the WTO over China’s restrictions on exports of nine other industrial materials, while parallel initiatives such as helium-3 sourcing from OPG highlight broader supply concerns.

Liang Shuhe, deputy director of foreign trade at the Commerce Ministry, said in a separate speech at the conference that China was closing unlicensed rare-earth mines because they have caused “lots of environmental damage.”

Australian and American rare-earth mines being developed now are low on dysprosium and terbium, but Avalon Rare Metals of Toronto is working on a mine in northwest Canada amid debates over B.C. critical minerals flows in the region, with these minerals. Neo Material Technologies of Toronto recently said it had found both minerals in tin mine tailings in Brazil.

Dysprosium and terbium are used to make very powerful but lightweight magnets, while terbium is also used to make computer monitors.

Either or both minerals are added to high-tech magnets to help them stay magnetic even at high temperatures. Many magnets tend to lose their magnetism as they warm up because the atoms in the magnet start to move around and cease to be lined up neatly along magnetic lines; adding a little dysprosium or terbium stabilizes the molecular structure of the magnet and so keeps the atoms in line.

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