WITH the European Union (EU), Japan and the US lodging yet another appeal with the World Trade Organisation (WTO) accusing China of violating international trade rules, this time regarding its rare earths export restrictions, Australian rare earths companies are poised to benefit from the
ongoing situation. China contributes about 95 per cent of the world’s rare earths supply and has been curbing exports of the commodity since 2010.
While global demand for rare earths has been growing due to the proliferation of smart phones and ‘green technology’, of which rare earths are an essential component, China has shrunk its export quota from 50,145t in 2009 to 30,184t in 2011, despite rest-of-world demand forthe commodity almost doubling in that same period.
Prior to export restrictions, the 17 rare earth elements were sold to companies outside of China for a typical ‘basket price’ that equated to about US$10 per kilogram, according to Australian-based Lynas Corporation.
Since the restrictions have been in place, China has been fuelling its domestic market by selling the 17 rare earth elements locally for a basket price equating to about US$66/kg in October 2011 to less than $35/kg in March this year.
Meanwhile, it has been supplying rare earths to the rest of the world at basket prices equating to about US$193.21/kg in the third quarter of 2011 and $73.84/ kg in March this year.
In mid-March, the EU, supported by Japan and the US, lodged an appeal against China with the WTO regarding China’s export restrictions on the 17 rare earth elements plus molybdenum and tungsten.
The trio alleged that the export restrictions had violated international trade rules.
In relation to the complaint, the European Commission (EC) issued a press release stating that China’s export polices were restrictive due to the inclusion of set quotas, a minimum pricing system, and additional requirements and procedures for exporters. In the statement, EC trade commissioner Karel De Gucht said the restrictions had far-reaching international impacts.
“These measures hurt our producers and consumers in the EU and across the world, including manufacturers of pioneering hi-tech and ‘green’ business applications,” Mr De Gucht said. This latest appeal comes after a recent petition against China’s raw material export restrictions. In that
case, the WTO ruled in favour of the complainants. In response to the WTO challenge, the Chinese Ministry of Commerce’s Department of Treaty and Law issued a statement that cited environmental concerns as the reason for cutting exports.
“[China] has repeatedly stressed that [the nation’s] policy objective is to protect resources and environment in order to achieve sustainable development and [that it] has no intension [sic] of protecting domestic industries through trade-distorting measures,” the statement said.
Managing director of Perth-based Kimberley Rare Earths Tim Dobson said he believed that even if the WTO ruled in favour of the complainants, China would find other ways to keep its rare earths exports reduced.
“I believe the Chinese will rightfully play their environmental card to its full extent,” Mr Dobson said. “[However], if the WTO appeal fails and, in my opinion, even if it doesn’t, China will make sure it has policies in place to maintain competitive advantages.”
Mr Dobson said that with China limiting its rare earths supply to the rest of the world and demand increasing,he thought Australia was well placed geographically and geologically to fill the supply gap. “The world’s population is growing at one billion people every 12 years, but even faster than that is the growth of the middle class in developing countries and we are going to see another three billion middle-class people by 2030. Every time there is a new middle-class person, they will be able to afford and purchase a new phone, car, television etc. This is where the real growth in demand is.
“The single biggest user outside of China is Japan. Korea is a large user as well. Some of the separation plants the Japanese are building are in places like Vietnam, so there is a very strong South East Asian centricity in the rare earths space. “My view, for what it’s worth, is there
is a good opportunity for Australia to become a leader outside of China. If we start to cooperate as producers, and maybe even get some government support, we could create a very good rare earths production industry on the back door of Asia,” Mr Dobson said. Australian-based Lynas is one of the world’s largest rare earths companies outside of China.
“There’s only one peer to Lynas and that is an American company called Molycorp, and it is redeveloping its Mountain Pass mine in California,” Mr Dobson said.
“They are the two that are being watched the most closely to get in to production.” Mr Dobson said that once Lynasand Molycorp proved that rare earths could be produced profitably outside of China, the global investment community would be more likely to invest in the commodity.
He added that he believed the rare earths price would stay where it had been – at between US$75 to $100/kg (for a typical basket price) – for the next few years, which would enable companies to mine to the material profitably without it being too expensive for buyers. There has been market speculation that China will suddenly increase suppl and flood the market, driving down the commodity’s price and thereby putting its largest competitors – Lynas and Molycorp – out of business, but Mr Dobson said he did not think that would happen. In Mr Dobson’s view, China’s export restrictions were to feed its own domestic industry as it had evolved into a major end product producer.
“Over the last 20 years, China has not dominated just rare earths production but rare earths technology development. “Now, instead of selling rare earths to the rest of the world, China sells you a car that contains rare earths. “It’s gone downstream. If you look back through the history, China went from selling ore to selling concentrate, to intermediate products, to refined products [and] to end products, which are the phones and the cars etc. “Now that China has developed that industry, it could actually be a net importer of rare earths in the near future and happily sell the rest of the world downstream, value-added products. “That’s the future.” Mr Dobson added that once Molycorp and Lynas were up and running, those companies would take “a big chunk” of the market share in rare earths output. “With that will come a more transparent price situation and then you’ve got what’s a true open market rather than an opaque closed market,” Mr Dobson said.
By Lorna Seatter