China denies reports it will cut exports of rare-earth elements

China on Wednesday denied reports it would slash exports of rare-earth elements next year, saying it was still formulating a plan to protect its supply of the valuable material needed in advanced industrial products.

The Chinese Ministry of Commerce was responding to an article published in the state-owned China Daily that reported Beijing would tighten its virtual monopoly on rare earths by cutting exports 30% in 2011.

Despite the denial, the ministry defended China’s right to restrict sales of rare earths overseas, a years-old policy that has unnerved foreign countries that rely on the material to make wind turbines, electric cars and state-of-the-art weaponry.

“China will continue to supply rare earths to the world,” the ministry said in a written statement. “The Chinese government is going to develop a reasonable rare earths export quota for 2011 after comprehensive research on rare earths production, domestic and international demand and sustainable development.”

Foreign governments have been reviewing their reliance on Chinese rare earths since China reportedly halted exports of the metals to Japan during a tense maritime dispute.

The move raised fears that Beijing would use its stranglehold on the market as a way to wield economic sanctions, a charge rejected by Chinese Premier Wen Jiabao this month.

“China is not using rare earths as a bargaining chip,” Wen said.

Some exporters contacted Wednesday said there was no halt placed on their exports.

“I’ve not heard of a ban,” said an employee at Baotou Rhodia Rare Earth Co. in Inner Mongolia who declined to give her name. “As long as you haven’t met your quota, you can still export.”

Rare earths are a group of 17 chemically similar elements — including cerium, lanthanum, samarium and neodymium — that have all manner of technological and industrial uses. Despite the name, these elements are not particularly rare. Mountain Pass, Calif., is home to one of the world’s largest rare earths mines. But mining operations ceased there in 2002 after a previous owner allowed a permit to expire. By the time the permit was renewed, low-cost competition from China made the facility uneconomical to reopen.

Now owned by Molycorp Minerals, the Mountain Pass mine is on track to reopen in the second half of 2012, said Jim Sims, the Colorado firm’s director of public affairs. He said the California mine’s projected production of 20,000 tons a year would be a significant addition to global supply, and that Australia’s mining industry is likewise moving to develop its rare earths deposits.

But “right now we’re virtually 100% reliant on China,” Sims said.

Indeed, China produces about 97% of the world’s supply of rare earths and sits on 36% of its reserves.

China says it cut its export quota by 40%, to about 30,000 tons, this year to limit environmental degradation and protect its remaining supply. About half the nation’s output goes to domestic use.

A Ministry of Commerce official suggested that China would have to import rare earths in 15 to 20 years.

Analysts said customs officers are now inspecting all rare earths exports, ostensibly over concerns about smuggling. That has slowed the process dramatically.

“Customs will be strict now,” said Chen Zhanheng, deputy director of the Chinese Society of Rare Earths, a government research group. “They’ll want to curb smuggling or the quota policy will fail.”

Analysts said that China also would like to see better prices for its exports after flooding the global market with cheap supplies for years. Some of the elements have already doubled in price since the summer because of China’s export quotas, industry officials said.

“There’s no doubt that China limiting its quotas will continue to drive up prices,” said Maryann Zhang of Asian Metal, a research firm.

That’s of little consequence to Wang Jiang, a sales manager for Zibo Jia Hua Advanced Material Resources Co., a raw materials processor and one of China’s 32 exporters of rare earths.

Wang said the government told him his quota would plunge to 284 tons in the second half of the year, down from 1,448 tons the first six months of 2010.

“The higher price didn’t help us at all because the quota was so little compared to what it used to be,” said Wang, whose company is a joint venture with a Canadian firm. “For our business, we focus more on the scale of our export. The increased price is not enough to cover our losses.”

Wang, who is based in central Shandong province, said he was still able to export rare earths to existing customers, many of whom are in the United States. But he has had to turn away new clients because he has almost reached his quota.

“It’s hard to predict what will happen next year,” he said. “But we definitely will look to diversify our products. We can’t rely on rare earths only.”

Chen of the Chinese Society of Rare Earths said it’s likely China will further reduce its exports next year as part of a plan to consolidate the industry. The number of existing mining permits has dropped from more than 1,000 two decades ago to around 100 today, he said.

Mining for the metals in China surged in the 1990s with little environmental oversight. Water sources were contaminated and hillsides obliterated by low-cost operators that drove some foreign competitors out of business.

China’s central government has taken a larger role in the rare earths industry in recent years and is encouraging not just mining but processing as well in order to move the sector up the value chain.

Jack Lifton, an independent consultant and rare earths expert, said China was slowing down its production in order to study it and ensure that it is working at maximum efficiency. He said the country will need massive amounts of the material if it hopes to build enough wind turbines to meet its renewable energy targets.

“It’s hard to fix things on the fly,” Lifton said. “So what I think what China is doing is examining what’s critical for their green future.... They’re not going to do anything that endangers the future of the Chinese economy.”

david.pierson@latimes.com

Deputy Business Editor Marla Dickerson in Los Angeles and Tommy Yang in The Times’ Beijing bureau contributed to this report.