Chinese rare earth metals prices soar

By Leslie Hook

Published: May 26 2011 18:20 | Last updated: May 26 2011 19:22

A gravity-defying leap in the price of Chinese rare earth metals has triggered fears that the cost of components used in a range of goods from mobile phones to hybrid cars could soar.

The three to fivefold jump in prices since January comes after China, the world’s biggest producer of rare earths, has clamped down on domestic output.

The implications could be far-reaching. Although annual consumption of the metals is small relative to that of other commodities, rare earths are found in everything from fluorescent lights to wind turbines. They are very difficult, if not impossible, to substitute.

Industrial buyers are in shock after witnessing the price of rare earths such as cerium oxide jumping 475 per cent in just five months, amid falling supplies.

“I’ve never seen anything like it,” says one US-based purchaser of rare earths. “People are trying to wriggle out of using rare earths in any way they can, whether by developing new products or finding substitutes.”

Rare earths came under the spotlight after China, which produces more than 90 per cent of the world’s total output, started to reduce export quotas two years ago. Beijing’s influence aroused concern when exports of rare earths to Japan were temporarily suspended after a diplomatic dispute.

Following that de facto embargo, governments around the world, particularly Washington and Tokyo, have stepped up their efforts to develop other sources of supply. But those efforts will take years. In the meantime, Beijing has tightened regulations on its own polluting rare earths sector as part of a programme to clean up Chinese mines. Many expect China’s rare earth production to fall as a result.

As China cuts further export quotas – this year’s overseas sales licence is 4.5 per cent lower on an annualised basis than last year’s and more than 40 per cent below the 2009 quota – global demand for the metals has been growing.

Beijing has also clamped down on smuggling, which at one point accounted for about one-fifth of total sales, further squeezing the global market.

read the rest of the article here: FT.com / Commodities - Chinese rare earth metals prices soar

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