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Worse Rare Earth Shortages 'Yet to Come'

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"Japanese trader recommends manufacturers 'tie up with Chinese companies.'"

Japan's import of rare earth elements (REEs) from China surged more than 50% from January–November 2010 over the same period in 2009—although it plunged by two-thirds from October–November due to Beijing's REE export restrictions.

While no news has emerged of stalling smart phone or hybrid car production due to a shortage of REEs, Japanese firms are trying to reduce their reliance on China.

And some metal traders say the worst is yet to come.

Shortages will begin hitting early this year because Japanese firms and trading houses will run out of inventories, which are typically worth about three months, while China will cut exports, said Katsuyuki Matsuo, president of trading company Kanmaterial Corp., adding that Beijing has also raised tariffs on rare earths, another blow.

"Japanese makers will realize prices (of REEs) have gone up and they may be reluctant to buy." Matsuo said. "But if Japanese trading houses hesitate, companies in other countries will take what should be left for Japanese manufacturers."

Major trading house Sojitz Corp. estimates domestic REE demand, rising by about 10% annually, will be 32,000 tons this year. However, Japan will be able to procure only 20,000 tons, of which 15,000 tons will come from China. The rest will come from other countries and from domestic recycling.

Sojitz's estimate for 2011 is lower than last year's due to decreasing imports from China.

Domestic measures to hedge bets, including partnering with producer countries other than China and developing technology requiring fewer rare earth metals, are misguided, Matsuo said. "Instead, companies should tie up with Chinese companies to secure supply. . .China continues to be the key player, and Japanese. . .will have to find trustworthy partners in China with which to form JVs to export custom-made rare earth products."

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