The International Herald Tribune, September 1, 2009 Tuesday -
China is reducing its quota for the tonnage of certain minerals that can be exported, requiring manufacturers of products with high-strength magnets for wind turbines and hybrid cars, to move production to China.
China is using its dominance in mining an obscure class of minerals to strengthen its emerging lead in many alternative energy technologies, from wind turbines to hybrid cars, and is laying plans this summer to tighten its grip on the market for these minerals.
In 1992, the Chinese leader Deng Xiaoping observed that the Mideast had oil but China had rare-earth elements. China now accounts for 93 percent of the world's production of rare-earth elements - and more than 99 percent of the output for two of these elements that have proved vital for a wide range of green energy technologies, as well as military applications like missiles.
Like the Organization of the Petroleum Exporting Countries with oil, China is now starting to flex its muscle. In each of the past three years, China has reduced its quota for the tonnage of rare-earth minerals that can be exported.
This year's Chinese export quotas are on track to be the smallest yet. But what is really starting to alarm Western governments and multinationals alike has been a spate of hints about a secret Chinese government plan for further restrictions on rare-earth exports.
China's Ministry of Industry and Information Technology has drafted a report to the country's State Council, or cabinet, recommending a six-year plan for rare-earth production, said four mining industry officials who have discussed the plan with Chinese officials. Only a few, often contradictory details of the plan have leaked out, but the outlines appear to involve even tighter limits on exports, so as to draw more manufacturing to China, as well as halting or reducing production at environmentally damaging mines in southern China.
The ministry did not respond to numerous requests for comment by phone and by fax over the past eight days. Jia Yinsong, a director general at the ministry, is scheduled to speak about China's intentions Thursday at the Minor Metals and Rare Earths 2009 conference in Beijing.
Officials in Beijing are requiring global manufacturers to move factories to China instead of importing rare earths from China as a raw material for factories elsewhere. ''Rare earth usage in China will be ever more than exports,'' said Zhang Peichen, the deputy director of the government-linked Baotou Rare Earth Research Institute.
Until this spring, it seemed that China's hammerlock on global production of rare earths might weaken in the next three years with the opening of two sizable mines in Australia with combined production equal to a quarter of current global output.
But the companies developing both mines - Lynas and a smaller rival, Arafura Resources - both lost their financing last winter because of the global financial crisis. Western buyers deserted Lynas's planned bond issue and Arafura's initial public offering of stock.
Mining companies wholly owned by the Chinese government quietly swooped in last spring with the cash needed to finish the construction of both companies' mines and ore processing factories. The Chinese companies reached agreements to buy 51.7 percent of Lynas and 25 percent of Arafura.
The Arafura deal has already been approved by Australian regulators and is subject to final approval by shareholders Sept. 17. The regulators have postponed twice a decision on Lynas, and now face a deadline of next Monday to act; the decision is politically touchy because of anger in Australia over China's arrest of four Rio Tinto employees accused of bribery to obtain commercial secrets, an allegation that Rio Tinto has denied.
Matthew James, an executive vice president of Lynas, said that the company's would-be acquirer had agreed not to direct the day-to-day operations of Lynas, but would have four seats on an eight-member board.
Expectations of ever-tighter Chinese restrictions have produced a surge over the past two weeks in the share prices of the few non-Chinese producers that are publicly traded. In addition to the two Australian mines, Avalon Rare Metals of Toronto is trying to open a mine in northwest Australia while Molycorp Minerals is trying to reopen a mine in Mountain Pass, California.
Unocal used to own the Mountain Pass mine, which closed in 1998 because of weak demand then and environmental compliance troubles. Cnooc of China almost acquired the mine four years ago with its unsuccessful bid for Unocal, which was purchased instead by Chevron, which in turn sold the mine last year to Molycorp.
A single mine in Baotou, in China's Inner Mongolia, produces half of the world's rare earths. Much of the rest - particularly some of the rarest elements most needed for everything from wind turbines to Toyota Prius cars - comes from small, often unlicensed mines in southern China.
In those mines, powerful acid is pumped into bore holes, let it dissolve some of the rare earths and then pump the slurry into leaky artificial ponds with earthen dams, according to rare-earth mining specialists. The Ministry of Industry and Information Technology has cut the country's target output from rare-earth mines by 8.1 percent this year and is forcing mergers of mining companies in a bid to improve technical standards, according to the government-controlled China Mining Association.
Several trends in green energy have produced a surge in demand for three rare-earth elements: neodymium, dysprosium and terbium. All three are used to make magnets that are very powerful yet lightweight.
The U.S. Air Force and General Motors played leading roles in the development of rare-earth magnets. The magnets are still used in the electric motors that control the guidance vanes on the sides of missiles, said Jack Lifton, a research chemist who helped develop some of the early magnets in the 1960s and 1970s. But demand is surging now because of wind turbines and hybrid vehicles.
The wind turbine market is growing rapidly, with China emerging as the world's largest manufacturer with sales that have doubled in each of the last four years. In addition, wind turbine manufacturers are shifting toward larger models that are more efficient but also require rare-earth magnets to improve reliability and keep from being too heavy.
Sales of hybrid cars have also risen sharply, with Toyota planning to sell 500,000 to 600,000 Priuses in its fiscal year through next March 31 and double that in the next few years. The electric motor in a Prius requires two to four pounds, or 0.9 kilogram to 1.8 kilograms, of neodymium, said Dudley Kingsnorth, a consultant in Perth, Australia, whose annual compilations of rare-earth mining and trade are the industry's benchmark.
Mr. Lifton said that Toyota officials had expressed strong worry to him on Sunday about the availability of rare earths.
Toyota and G.M., which plans to introduce the Chevrolet Volt next year with an electric motor that uses rare earths, both declined to comment Monday.
Rick A. Lowden, a senior materials analyst at the U.S. Defense Department, told a congressional subcommittee in July that his office was reviewing a growing volume of questions within the government about the availability of rare earths.
Even companies that are able to obtain quota rights to buy rare earths from China must pay a value added tax of 17 percent and an export tax of 25 percent. But neither of those taxes apply if overseas customers let China process the rare earths into high-strength magnets and then sell the magnets.
China is increasingly manufacturing high-performance electric motors, and not just the magnets.
''The people who are making these products outside China are at a huge disadvantage, and that is why more and more of that manufacturing is moving to China,'' Mr. Kingsnorth said.
August 31, 2009
LYC Price at posting:
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