HONG KONG - China controls the global supply of rare earths, a group of minerals critical to the production of high-tech products, from cell phones and televisions to missile defense systems. By imposing increasingly stringent quotas on export supplies and thus driving up rare earth prices, analysts say China appears intent on provoking its international trading partners to take action.
Extracting and processing the group of 17 rare earth minerals is a costly and polluting process, which China cites as the reason it has cut export quotas by 27 percent in the last year alone, to 10,500 tons.
Speaking Wednesday, Deputy Industry Minister Su Bo dismissed allegations by the U.S. and European Union that environmental protection is merely a ruse by which Beijing justifies reducing global supplies.
"With only 23 percent of the world's total rare earths reserve, China provides over 90 percent of the world's market supply, making major contribution to the world's economic development. However, the excessive exploitation of the natural resource has led to eco-environmental problems which seriously hinder the sustained development of the industry," Bo said.
He said China's environment has suffered from the excessive development of rare earth minerals.
Around 30 percent of rare earth deposits are found in China. However, acquisitions by Chinese state-owned companies, and bankruptcies among producers outside China, mean Beijing now controls 90 percent of actual production worldwide.
While Bo denies any manipulation, international prices for rare earths have soared as China strangles supply. Terbium oxide, for instance, trades for $2,000 a kilo in New York, but for $600 a kilo in China.
By imposing quotas on overseas supplies, analysts say China is hoping to encourage the development of its own high-tech, rare earth-dependent industries. Beijing’s aim is to stimulate growth and move the country away from low-skill, low profit manufacturing.
However, that move could backfire in the longer term, suggests Matthew Fusarelli, head of research at AME, as industrial nations seek to develop alternative technologies.
“Consumer electronics and products using rare earths have quite short life cycles. What I think we will see going forward is a lot more substitution - the next [generation] of these sorts of goods will be designed to use rare earths much more sparingly, if at all,” Fusarelli said.
In the meantime, the U.S., Canada and Australia are working to end their dependence on China by re-opening formerly unprofitable rare earth mines.
By 2016, 60,000 tons of these minerals are expected to come from non-Chinese sources. However, securing regulatory approval to open mines and processing facilities can be a lengthy process.
After a two year delay, Australia’s Lynas Corp received only temporary permission this week to operate a rare earth processing plant in Malaysia, observes Fusarelli.
“There was a lot of local resistance - people concerned about radiation and pollution levels. They have only just received political approval after the company spent hundreds of millions of dollars building the plant,” Fusarelli said.
Having entered a formal complaint about Beijing’s uncompetitive practices at the World Trade Organization, parties including the U.S and E.U. began negotiations with China in April.
In a sign of just how important rare earth supplies are to Japan’s technology sector, Tokyo also added its name to the petition - the first time Japan has entered a trade dispute with China through the WTO.
The Geneva-based body is expected to adjudicate on the matter if a negotiated settlement cannot be agreed before the end of the month.
Extracting and processing the group of 17 rare earth minerals is a costly and polluting process, which China cites as the reason it has cut export quotas by 27 percent in the last year alone, to 10,500 tons.
Speaking Wednesday, Deputy Industry Minister Su Bo dismissed allegations by the U.S. and European Union that environmental protection is merely a ruse by which Beijing justifies reducing global supplies.
"With only 23 percent of the world's total rare earths reserve, China provides over 90 percent of the world's market supply, making major contribution to the world's economic development. However, the excessive exploitation of the natural resource has led to eco-environmental problems which seriously hinder the sustained development of the industry," Bo said.
He said China's environment has suffered from the excessive development of rare earth minerals.
Around 30 percent of rare earth deposits are found in China. However, acquisitions by Chinese state-owned companies, and bankruptcies among producers outside China, mean Beijing now controls 90 percent of actual production worldwide.
While Bo denies any manipulation, international prices for rare earths have soared as China strangles supply. Terbium oxide, for instance, trades for $2,000 a kilo in New York, but for $600 a kilo in China.
By imposing quotas on overseas supplies, analysts say China is hoping to encourage the development of its own high-tech, rare earth-dependent industries. Beijing’s aim is to stimulate growth and move the country away from low-skill, low profit manufacturing.
However, that move could backfire in the longer term, suggests Matthew Fusarelli, head of research at AME, as industrial nations seek to develop alternative technologies.
“Consumer electronics and products using rare earths have quite short life cycles. What I think we will see going forward is a lot more substitution - the next [generation] of these sorts of goods will be designed to use rare earths much more sparingly, if at all,” Fusarelli said.
In the meantime, the U.S., Canada and Australia are working to end their dependence on China by re-opening formerly unprofitable rare earth mines.
By 2016, 60,000 tons of these minerals are expected to come from non-Chinese sources. However, securing regulatory approval to open mines and processing facilities can be a lengthy process.
After a two year delay, Australia’s Lynas Corp received only temporary permission this week to operate a rare earth processing plant in Malaysia, observes Fusarelli.
“There was a lot of local resistance - people concerned about radiation and pollution levels. They have only just received political approval after the company spent hundreds of millions of dollars building the plant,” Fusarelli said.
Having entered a formal complaint about Beijing’s uncompetitive practices at the World Trade Organization, parties including the U.S and E.U. began negotiations with China in April.
In a sign of just how important rare earth supplies are to Japan’s technology sector, Tokyo also added its name to the petition - the first time Japan has entered a trade dispute with China through the WTO.
The Geneva-based body is expected to adjudicate on the matter if a negotiated settlement cannot be agreed before the end of the month.