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http://www.bloomberg.com/news/2010-10-26/race-to-replace-china-in-rare-earth-supplies-may-take-decade-germany-says.html

Race to Replace China's Rare Earths May Take Decade, Germany Says

By Brian Parkin and Tony Czuczka - Oct 26, 2010 8:44 PM GMT+1000

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Chinas decision to curb exports of rare earths is set to spark a global race for alternative sources that may still take a decade to secure sufficient supplies, the head of the German commodities agency said.

More rigid environmental standards in the European Union and ethical questions over sourcing raw materials from developing nations mean there can be no quick fixes in finding viable alternatives to China, producer of more than 90 percent of the worlds rare earths, said Volker Steinbach, who heads the Hanover-based government agency. Stepping up global pressure on the Chinese government to resume exports may be the best short- term option, he said.

Were faced with a gap in rare-earth supplies that cannot be plugged overnight, Steinbach said by phone ahead of a conference in Berlin today on securing commodity resources. Realistically, bringing rare earths in volume to markets from new sites like Mongolia, Africa and Greenland may take five to 10 years.

Germany joins Japan and the U.S. in calling on China to restore rare-earth exports after the Chinese government in July announced cuts in production of the elements used in everything from hybrid vehicles and flat-screen TVs to weapons systems. With demand for rare earths already forecast to outstrip supply, a scramble to secure substitute supplies is underway.

Chile, South Africa

German Economy Minister Rainer Bruederle, whose ministry is hosting todays conference, plans seven strategic partnerships to secure commodities, including rare earths and copper, according to two officials with knowledge of the matter.

The partner nations are Mongolia, Namibia, Nigeria, Kazakhstan, South Africa, Chile and Peru, said the two officials, who spoke on condition of anonymity because the plans are not yet public.

Safeguarding rare-earth supplies is crucial and Germany will forge partnerships with mining states to help do so, Bruederle said in a speech to the conference, without naming the countries.

The ghost of protectionism haunts global trade and China must realize that its policy is not a one-way street, he said.

Chinas policy on rare-earth shipments is a sovereign right that doesnt conflict with World Trade Organization rules, Foreign Ministry Spokesman Ma Zhaoxu said in Beijing today.

That stance won some support from the trade arbitrators director general, Pascal Lamy, who said the WTO has historically focused on combating import restrictions rather than exports, which are nearer to sovereignty matters.

Very Shallow

The rule book on tackling export restrictions is very shallow in the WTO, Lamy said in a speech to the commodities conference in Berlin. WTO members should commit to improving on this situation, he said.

The German plans to diversify its sources of rare earths follow moves by Japan to secure supplies from Vietnam and India, while at the same time coaxing China to ease exports.

Longer term, Chinese demand for rare earths looks set to remain, said Steinbach, whose agency was created by the Economy Ministry last month after industry complained of government inaction to safeguard access to commodities such as europium used in flat-screen televisions.

The cumulative cuts announced by China will put export quotas this year at 30,000 tons, or 18,000 tons less than in 2009, said Steinbach, a geologist by training.

What the numbers are saying is that China is using about two-thirds of its own production this year -- up from a quarter 10 years ago, said Steinbach. To me, thats a signal that diminishing quotas may be here to stay.

Even so, starting up private partnerships to produce rare earths from Greenland, Mongolia and Kazakhstan face a thicket of European Union environmental regulations as well as building infrastructure problems that could take five to ten years to solve, said Steinbach.

To contact the reporters on this story: Brian Parkin in Berlin at [email protected]; Tony Czuczka at [email protected].

To contact the editor responsible for this story: James Hertling at [email protected]