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China to Cut Rare Earth and Strategic Metal Production
China to Cut 20% of Rare Earth and Strategic Metal Production
For the past three years China´s influence has increasingly put pressure on the mining and refining industries throughout the world. China controls 90% of worldwide production of rare earth metals and 95% of rare strategic metals like tungsten. The Ministry Of Industry and Information Technology has announced that it will be cleaning up the countries metals mining industry.
The new standard says that individual Chinese rare earth mining companies must now produce a minimum of 20,000t of ore per year. Extracting and smelting companies will have to produce a minimum of 2000t or more per year of refined product. This puts 23 mining companies within China on the closure list and 100 smelting and extraction companies. This jeopardizes over 20% of Chinese production. The goal is consolidation of the mining industry within China. It will allow the Chinese central authorities to fix prices. The other benefit is that Beijing will be able to have more control of the flow of the metals. For years China has had a notorious black market in the rare earths. The number of companies that will be allowed to export these metals will also be reduced.
In March Japan, EU and USA filed a World Trade Organization complaint against China. The governments accused China of violating its free trade agreements. China believes that the decisions will help protect the environment and its technology industries. It appears that China would like the world to bring its production of cars, electronics and equipment manufacturing to its shores. One way of doing this is to keep the prices via export quotas and taxes of these critical metals elevated so that it makes economic sense to produce the goods in China.
The metals subject to the new guidelines are the rare earth metals or lanthanides and rare strategic metals like tungsten, molybdenum and gallium. These metals are critical to our lifestyles. The solar, automobile, mobile phone, television, wind energy, computer and national defense industries are at the mercy of these metals.
Recently we saw some of the fallout that can happen when Chinese companies have access to foreign company technologies. VW recently complained that FAW, a Chinese production company, stole its engine technologies and have started building their own version of the motor and selling cars with the motor in Russia alongside VW and Skoda´s own models. This is the risk you take when building your products in China. Companies have a choice to either build in China with cheap metals or build in their own countries where the metals are twice the price after export taxes and XWorks costs.
One customer that must be nervous is the US Defense Department. These metals are absolutely critical for production of aircraft, armaments and armor. Many of these products rely on materials like tungsten that are not found in great supply domestically. In 2011 the British Geological Survey ranked tungsten 8.5 out of 10 on its critical metals list. There are mines throughout the world that countries and companies are rushing to get on line, but it could be years before they are viable. Until then it looks like these metals may be a great place to invest.
Swiss Metal Assets have recently began offering its, “Defense” basket of rare strategic metals with an end utility targeting the defense industry. The basket price has responded to this news by increasing in price by 2.3% since its launch on May 1st 2012.