Citing environmental concerns, China’s Premier Wen Jiabao unveiled a new plan for rare earth mining earlier this week. The five-year plan would push new technology, stricter environmental regulations and move toward consolidating the rare earth mining industry in China.
Despite the fact that China promised more cooperation with foreign buyers of rare earths, the government was vague enough to make investors nervous about the changes underway in the sector as stocks in several rare earth mining companies rose yesterday. Avalon Rare Metals Inc. (AMEX:AVL) shot up nearly 7 percent, and Australia’s Lynas Corp. (PINK:LYSCF) rose more than 2 percent.
The announcement was also a clear sign that China’s committed to cracking down on the illegal mining of rare earth minerals within its borders. Much of this stock is smuggled out of the country and into Japan where it’s used in numerous high-tech products.
Earlier this month, news leaked out of China that the country was building facilities to house rare earth strategic reserves in the northern region of Inner Mongolia, according to AFP. Now, the government would like to forcibly consolidate the mining of the minerals in the hands of fewer companies.
China’s also planning to consolidate some of the governmental agencies that oversee rare earth mining. “The rare earth industry regulation and management involves several ministries, which, sometimes, have inconsistency in policy making,” Yang Wanxi, director of a government-connected rare earth institute, told Xinhua.
China’s cap on rare earth exports are at the center of what’s quickly becoming a contentious international issue. Last summer, China limited rare earth exports by 72 percent, according to Bloomberg. Six months later, the country announced it would further slash exports by 35 percent for the first six months of 2011.
That’s caused an enormous spike in prices for rare earths as China controls as much as 95 percent of international supply. Slowing that supply to a trickle while demand for rare earths is rising has mining companies from Australia to Wyoming to Canada clamoring to move into production. It’s also ruffled the feathers of governments including the U.S., Mexico and the EU with all three filing complaints with the World Trade Organization over China’s manipulation of the raw materials market, according to the Wall Street Journal.
While the current WTO case against China doesn’t cite rare earths but rather other raw materials, a second case that specifically cites raw earths will likely be opened if the first succeeds. In its defense, China argues that they’re limiting the export of raw materials in order to protect the environment. Many believe that’s a thin argument so that the country can hoard raw materials in an attempt to woo foreign corporations into setting up shop in China.
The WTO is expected to deliver a report to all four countries today that will reject China’s argument that it’s limiting raw materials for environmental reasons. China will then have the option to appeal or open up exports of raw materials. If the government refuses to comply it may face sanctions by the WTO and a future case arguing against export caps on rare earth minerals, which could lead to further sanctions. Either way, it doesn’t appear the rare earths sector will see increased supply out of China anytime soon. That will likely keep upward pressure on the metals through at least July.
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Tags: AVL, LYSCF, rare earths
