China Initiates REE Market Changes

Source:

"Quotas slashed 72% on overproduction fear, lack of 'due profit.'"

The price of rare earth elements (REEs) may explode. The Chinese government has dramatically curtailed the export quotas for Q210. The slow drawdown of export quotas over the last five years is well documented and has drawn criticism from the U.S. and other countries. Citing fear of overproduction, environmental issues and a lack of 'due profit returns,' quotas were slashed by 72%. Chinese officials are also considering a pricing system for many of the REEs based on a negotiated price. China has stopped issuing new exploration licenses until June, 30 2011.

The reduction of export quotas this week comes on the heels of threats from the U.S. for a WTO trade dispute over unfair practices. Shipments of REEs out of China will be capped at 7,976 tons, down from a total of 28,417 tons year over year. The move will, undoubtedly, drive up global prices and ensure that China's domestic needs are met.

"The rare earths industry officials have realized that, after many years of continued growth in exports, the industry didn't receive due profit returns," Liu Aisheng, director of the Chinese Society of Rare Earth.

Chinese officials are rumored to be considering the adoption of a pricing system for various REEs. The pricing system is supposed to alleviate vicious 'cut throat' competition and create a more transparent pricing scheme.

Reports of this pricing system also mention that rare earth companies will be integrated in to three to five conglomerates. Reports have said that that the Chinese plan to adopt this system as early as this month. With the creation of these large companies, China hopes to crackdown on illegal mining operations that have lead to chaos in the market, pricing issues and massive environmental pollution.

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