Avalon?s take on Chinese export quotas in 2011 ? and 2012
Avalon Rare Metals weighed in on those pesky Chinese export quotas earlier this week, saying that, on a year-by-year basis, the second half quota figures were effectively a non-event.
It then raised the question of how China will deal with quotas in 2012, when domestic demand will apparently monopolize much of the country?s supply of REEs.
The full release can be found here: http://goo.gl/tTjxa
?China's Ministry of Commerce announced on Thursday, July 14th, that the rare earth export quota for the second half of 2011 will be 15,738 tonnes. Much of the initial media reaction interpreted this as a significant increase in supply,? Avalon said. ?Some media reports concluded that the Chinese export quota had increased in reaction to a recent WTO ruling. Traders reacted negatively to these reports and share prices of rare earth companies outside China declined as a result.?
In its Industry Bulletin: Chinese Export Quotas for H2 2011? increased rare earth supply or not?, Avalon said the market overreacted due to the confusion arising from how the numbers were presented.
?In reality, the 2011 export quota on a year-over-year basis, as illustrated below, is essentially unchanged from 2010, making the announcement effectively a non-event,? it said in the bulletin.
It did make mention of what Lynas had to say about how the export quota was changed to include ferroalloys containing 10% or greater amounts of rare earths.
?Lynas Corp., in a press release dated July 15th, estimated that these ferroalloys would account for at least 2,000 tonnes of annual exports, resulting in a minimum 7% reduction in the aggregate amount of rare earths available for export compared to 2010,? Avalon said.
It said the Chinese government had been making significant strides in controlling its rare earth business over the last five years, by concentrating production to a limited number of companies; limiting foreign ownership; cutting off new mining licenses; and working to reduce illegal mining. China has also imposed export taxes and not refunded value-added tax on exports of rare earths.
?Avalon's view is that the July14th announcement is a continuation of China's strategy to target 30,000 tonnes as the exports quota for the next five years,? it said in the bulletin.
Having said that, Avalon said the Kaiser Bottom Fish Online commentary on the export quotas pointed out that ?if recent Chinese guidance is accurate on how much production will be shut down this year, then domestic supply in 2012 may only exceed domestic demand by some 6,800 tonnes suggesting potential for a sharp reduction in rare earths available for export next year.?
And in conclusion?
?After 2016, when a few select rare earth projects outside China will be in production, there will be no need for the Chinese to restrict exports as they will no longer need to export. China's overall rare earth export strategy has not changed and industry outside China still needs new rare earth production from outside China to meet increasing global demand,? Avalon said.
LYC Price at posting:
$2.13 Sentiment: Buy Disclosure: Held
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