China Announces Additional REE Quotas

- May 28th, 2012

The rare earth sector has once again been left second-guessing China; the REE powerhouse has gone against previous indications and increased its export quota.

China Announces Additional REE Quotas

China’s stance on rare earth quotas left analysts guessing last week as the market learned that the Asian giant has announced additional export quotas for 2012.

The rare earth element (REE) market has been on edge since March, when an already tense US-China relationship took a new turn when the US, EU, and Japan moved in on the World Trade Organization (WTO) to challenge what it labelled as restrictive rare earth export policies. Some speculators argue that China’s goal is to create the ultimate monopoly by driving up export costs to the point that manufacturers are forced to relocate their facilities to the People’s Republic.

However, according to recent Chinese media reports, the Ministry of Commerce has now stated that it will allow companies to potentially export an additional 10,680 tonnes of REEs, bringing the total quota for 2012 to 21,226 tonnes. It added that the additional quotas have been allocated to twelve companies that have passed stringent environmental reviews. The companies include a subsidiary of aluminum manufacturer Chalco (HKG:2600). Interestingly, Inner Mongolia Baotou Steel Rare-Earth (SHA:600111), the largest rare earth producer in China, was once again excluded from the list.

Quota indecision evident

The move has surprised many considering the Chinese government’s comments less than six weeks ago, which underlined that quota limits would not need to be lifted on the basis that export numbers in 2011 were well below pre-determined levels.

REE prices have experienced substantial volatility over the past 18 months on the back of a clear case of indecision on the part of Chinese trade administrators. This vacillation is highlighted by the fact that China initially granted two batches of rare earth export quotas totalling more than 30,000 tonnes for 2011, followed by a first batch of 2012 export quotas of only 10,546 tonnes.

While China controls approximately 95 percent of the global supply of REEs, many believe that the government reduced its quotas in an attempt to secure greater control over market prices; however, this plan seems to have backfired amid a sputtering economic recovery.

“Wait-and-see attitude”

The ministry has also confirmed that only half of last year’s 30,184 tonne quota was in fact used, while major rare earth exports in March of this year fell by more than 70 percent compared with a year earlier, according to customs data. Data compiled by Beijing-based rare earth consulting firm Baichuan Information highlights that during the first quarter of 2012 China exported only 2,773 tonnes of REEs – a mere 26 percent of the outlined quota.

“The global market has adopted a cautious, wait-and-see attitude in rare-earth procurement, resulting in weakness upstream and downstream,” said Baichuan analyst Du Shuaibing.

Lynas project faces further delays

Meanwhile, Lynas Corporation Ltd. (ASX:LYC), a company focused on creating a fully-integrated source of REEs from mine through to market, is facing further delays to its project in Kuantan, Malaysia.

Earlier this month the company expressed optimism that it was on track to commence production in June after an official in the country called the Lynas Advanced Materials Plant (LAMP) “the safest rare earths plant in the world.”

Pol Le Roux, vice president of sales and marketing for Lynas, commented that he believed a public hearing set for May 21 would be the final step in the process; however, a quick turnaround now seems unlikely as Malaysian Science, Technology and Innovation Minister Datuk Seri Maximus Ongkili announced that he will make a decision on the appeal to revoke Lynas’ temporary operating licence (TOL) in two weeks’ time.

“I have to make the decision as soon as possible, within two weeks,” said Ongkili. “I’ve received some submissions from the Atomic Energy Licensing Board (AELB), and am now waiting for some responses from other specialists in the field.”

In April, three individuals appealed the AELB’s decision to award the company a TOL for the LAMP facility. The individuals are all local residents who claim to be affected by the decision to allow the processing plant to operate.

Legislation calls for expert opinions

According to local media sources, the ministerial appeal, made under Section 32 of the Atomic Energy Licensing Act, gives the minister the authority to consult relevant authorities and experts on the matter.

“Under the law, I am able to ask any other specialists in the field to provide their expert advice, which is what I have done,” said Ongkili. He added that the Parliamentary Select Committee (PSC) ended its last public hearing on the issue last Monday and that the final report by the PSC will be tabled in parliament on June 14.

Lynas, however, announced in a statement that it has received no direct confirmation of the committee’s timetable. Once the project is operational, it is expected to meet 30 percent of the global demand for REEs outside of China

International trade concerns

Many had feared that the mounting controversy surrounding the project might affect trade relations between Australia and Malaysia, but these concerns were laid to rest last week when Australian Trade and Competitiveness Minister Craig Emerson revealed that the two nations have signed the Malaysian-Australia Free Trade Agreement (MAFTA).

“A FTA doesn’t usually focus on specific projects. It focuses on procedures, practices and the general effort of opening up each country’s markets. That’s what these agreements do, they don’t actually conventionally list individual projects and that has not happened in this case for that reason,” he said.

He mentioned that the two countries spoke about the Lynas project before signing and added that that Malaysia’s Parliamentary Select Committee has been tasked with the investigation of the plant’s construction and Malaysia  will have the final say on the matter.


Securities Disclosure: I, Adam Currie, hold no direct investment interest in any company mentioned in this article.

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2 responses to “China Announces Additional REE Quotas

  1. You have shared some interesting points, l do agree hard to make money when gold is trading at $1,300 per ounce. The cost factor of developing new mines also play with the cost factors of determining the real value of the return on your investment… Investing will always be a gamble…..

  2. You have shared some interesting points, l do agree hard to make money when gold is trading at $1,300 per ounce. The cost factor of developing new mines also play with the cost factors of determining the real value of the return on your investment… Investing will always be a gamble…..

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