WTO’s ruling on the ‘rampant illegal rare earth production’ in China force rapid regulation changes

tdwtoAs a result of the WTO Appellate Body issued its report on August 7th, while it has upheld a ruling that China violated international trade rules with restrictions on the export of rare earths, China’s Ministry of Commerce (MOFCOM) responded to this ruling with a statement saying that it regretted the WTO’s reaffirmation of its earlier ruling, according to the Xinhua News Agency. The MOFCOM also reportedly vowed to study the decision and adopt measures which are in accordance with the WTO rules in the future. Despite the MOFCOM has not yet announced its countermeasures, however, I think that it’s difficult to avoid the removal of export quotas and tariffs on rare earth since next year.

“For a WTO rare earth lawsuit case, the state has adopted a series of policies and measures to better coordinate rare earth development”. Gan Yong, deputy director of the Chinese Academy of Engineering and head of the Association of China Rare Earth Industry (ACREI), said at the Baotou China Rare Earth Industry Forum. “To remove rare earth export quotas as an industrial management mechanism, it would be more difficult for the Chinese government to regulate the industry. Therefore the government needs to formulate new countermeasures to ensure the rare earth operation in accordance with the law and regulations,” Gan Yong added.

The Chinese authorities will carry out a series of new measures in the next few months, including to further increase resource taxes on rare earth sales again in order to prevent rare earths from being exported at unreasonably lower prices as well as efforts to stabilize the country’s rare earth market, according to a report in the state-run China Securities Journal reported on Tuesday, citing an unnamed authority.

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“China set its production quota for 2014 at 105,000 tons, of which the production quota for the rock-type light rare earths concentrate was 87,100 tons and the ion-absorption-type medium and heavy rare earths was 17,900 tons. Latest statistics showed that the total actual domestic demand for the rare earth concentrate should be stood at approximately 151,740 tons (includes approximately 125,168 tons of rock-type light rare earths concentrate and approximately 26,572 tons of ion-absorption-type medium and heavy rare earths), therefore the shortage of rare earth concentrate should be stood at approximately 46,740 tons.” said Ma Rongzhang, secretary general of the ACREI at the Baotou Forum.

The ACREI also said on the Baotou Forum that the country’s annual surplus of lanthanum oxide and cerium oxide are approximately 50,000 tons, while the surplus of yttrium oxide is approximately 10,000 tons per year at present. Moreover, the trend of price declined has continued into this year while the average price of rare earths has fallen back to the levels of 2010. Clearly which means China’s illegal rare earth operation is still rife. The ACREI estimate that unlicensed and illegal production account for approximately 50% of China’s rare earth total output at present.

China produces 90% of the world’s supplies of rare earths. Despite the high demand for rare earths which are used to make a range of high-tech products from cell phones and renewable-energy to hybrid cars and defense industries. However, the high profits from illegal mining have led to collusion between local government officials and illegal miners, “black interest chain” and the excess capacity are still two major reasons causing low rare earth prices at present.

In order to cracking down on the “black interest chain,” The MIIT will work together with several other departments and ministries under the State Council to launch a new round of crack-down on rare earth “black interest chain” since August 15th, an official from MIIT saying that the strength of this crackdown will be heavier than that of last year with a majorly target of crack-down on collusion.

China lost the WTO rare earth case, which is forcing the country speed up to improve its regulations on these rare earths minerals while to curb environmental degradation and protect resources. However, China currently sits at a difficult inflection point after WTO’s final ruling on rare earth due to the rampant illegal rare earths production.


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Hongpo Shen

About Hongpo Shen

Hongpo Shen is a Chinese freelance writer, professional blogger focusing on China's rare earth market, and previously held 15 years of experience in the local government of Shanghai, China. whose degrees include International Economics & Trade and Political Science. He has been an editor for InvestorIntel since May 2012.
  1. Where was the latest statistics for china domestic demand 151,740 tons coming from? With this demand, why in other paragraph it said the surplus of la & ce were 50,000 tons? Even regardless that illegal 50,000 tons, if they can sell all 105,000 tons of production quota it should not have any surplus… Please comment

    • Thank you Andrew

      The surplus of la & ce are mainly caused by the serious imbalance of China’s rare earth consumption structure and the rampant illegal rare earth production.
      For example,in China’s 2014 rare earth annual quota of 105,000 tons,lanthanum and cerium account for approximately 70.57%,
      Praseodymium neodymium oxide account for approximately 20.08%.( China increased its light rare earth production quota in order to meet the rapid growing demand for neodymium and praseodymium in the application of rare earth magnets sector,
      In fact,according to people familiar with the situation, the la & ce inventory of the Inner Mongolia Baotou Steel Rare-Earth Group has exceeded 150,000 tons by far.

      • Hongpo,

        Don’t you think that this indicates that the COGS for Baotou is very low? Essentially the Ce/La is being scrapped, or “inventoried,” at cost yet the Nd and Pr prices haven’t gone up much. I have to assume that even “inventorying” Ce and La doesn’t much impact the overall cost of the production of Nd and Pr. Is this correct, or am I missing something that is perhaps politically driven such as a subsidy?

        Jack Lifton

        • Thank you Jack,
          Now Chinese government plans to extend these lanthanum and cerium to further upgrading its traditional industries.
          according to Mengjian,deputy director of China State Key Laboratory of Rare Earth Resources Utilization,predicted that as the promoter of various aluminum,iron,steel,and magnesium alloys,pvc material,etc.
          China’s overall lanthanum and cerium consumption can reach up to more than 100,000 tons per year in the following few years.
          If their upgrading is successful,which will greatly reduce the pressure on the country’s surplus of lanthanum and cerium.

      • Thank you Hongpo,
        Following this logic, is that mean the annual quota 105,000 tons included the surplus of 50,000 tons of ce,la? If it is, they actually sold 55,000 tons from the annual quota only.. And then in order to match with the legal 101,740 tons (151,740-50,000) for statistics data, they have to take out 46,740 tons from inventory. Remember all these inventory were not ce, la as they are surplus, does China RE companies have these inventory level overall?

        • Thank you Andrew,

          the annual production quota 105,000 tons,which does not mean the country’s actual output.

          China’s total actual output (includes unlicensed and illegal mining) should exceed 200,000 tons.

  2. Hongpo, this is all cheap lip service …

    “The Chinese authorities will carry out a series of new measures in the next few months, including to further increase resource taxes on rare earth sales again in order to prevent rare earths from being exported at unreasonably lower prices as well as efforts to stabilize the country’s rare earth market”

    I will believe it when I see it !

  3. “surplus of yttrium oxide is approximately 50,000 tons per year at present” Are you sure about that? Isn’t that far higher than the worldwide annual production of yttrium oxide?

  4. Hongpo

    You know that China is not going to take the WTO dispute
    resolution as the final solution to the rare earth debate.

    China may put forth a stoic face and benign lip service of compliance.
    However, the brains behind the poker faces have turned on the afterburners and are formulating work-arounds.

    China will put into play other strategies. China has the comparative advantage and is not going to relinquish it to a bunch of words written in English on occidental paper.

    China does not respond well to those that are constantly shaking their cage.

    China’s response will not be transparent, it will emerge in the consequential form of “Pay Back” in other geopolitical activities.

    The world leaders that think this WTO ruling was an absolute and final victory are living in fantasy land. The western world is losing its’ strategic thinkers.

    If the ROW thinks it can just back and enjoy the ride while China produces
    and distributes the critical supply of the worlds rare earths — then they are
    living on another planet.

    Other nations that have deposits of rare earths had better roll up their sleeves, put a pick in the ground and break a sweat — before it is too late.

    When that great day arrives when China decides it is time to flex its’ muscles and defiantly takes a stand, then it will not be love, peace, and happiness for all mankind.

    Caveat … lest we forget.
    “It is well known that when you do anything, unless you understand its actual circumstances, its nature and its relations to other things, you will not know the laws governing it, or know how to do it, or be able to do it well.
    - Mao Tse Tung

    Ge an quan huo
    Watch the fires burn across the river
    (Delay entering the battle until all the other players have become exhausted fighting amongst themselves)
    – Tan Daoji

    When anger rises, think of the consequences. – Confucius

    http://www.openeyesopinion.com/chinas-rare-earth-comparative-advantage/

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