How The H1-2011 Rare-Earth Export Quotas Were Allocated

by Gareth Hatch on December 30, 2010 · 12 comments

in China, News Analysis, Rare Earths

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On December 28, 2010 the Chinese Ministry of Commerce announced the allocation of rare-earth export quotas to individual companies operating in China, for the first half of 2011. Including a provisional allocation of a small export quota likely to be awarded in March 2011, the total allocation for H1-2011 is 14,508 t of rare-earth materialsAs previously mentioned at TMR, there was some initial confusion in the subsequent press reports on the numbers associated with the announcement - or more specifically comparisons with H1-2011 figures.

The individual allocations of quotas are listed in the table below, divided into lists for Chinese- and foreign-owned companies. The two lists are sorted from highest-to-lowest allocation. It can be seen that the rare-earth enterprises operated by Rhodia (Baotou Rhodia Rare Earth Company and Liyang Rhodia Rare Earth New Materials Company) and Neo Material Technologies (Zibo Jiahua Advanced Material Resources Company and Jiangyin Jiahua Advanced Material Resources Company) received between them the majority of quota allocations for foreign-owned companies, operating in China.

The original announcement was published on the Ministry's Web site, in the Chinese language (naturally). Associated English language versions, picked up and reported on by the mainstream media, neglected to include some interesting details on how the allocations were made to the individual companies.

Allocation of rare-earth export quotas to individual companies in China, for H1-2011.
Source: Chinese Ministry of Commerce
Exporting Company: Chinese-Owned Allocation (tonnes)
Baotou Huamei Rare Earth Hi-Tech Company 954
Inner Mongolia Baogang Hefa Rare Earth Company 750
Leshan Shenghe Rare Earth Technology Company 750
China Minmetals Corporation 747
Inner Mongolia Baotou Steel Rare Earth Hi-Tech Company 740
Shandong Pengyu Industrial Company 709
Gansu Rare Earth New Materials Company 689
Yiyang Hongyuan Rare Earth Company 594
Sinosteel Corporation 584
China Nonferrous Import-Export Company Jiangsu Branch 493
Jiangxi Golden Century Advanced Materials Company 432
Guangdong Rising Nonferrous Metals Group Company 431
Xuzhou Jinshi Pengyuan Rare Earth Materials Company 410
Jiangxi South Rare Earths Hi-Tech Company 401
Ganzhou Chenguang Rare Earth New Materials Company 374
Grirem Advanced Materials Company 333
Ganzhou Qiandong Rare Earth Group Company 329
Funing Rare Earth Industry Company 327
Jiangsu Geo Quin Nano Rare Earth Company 251
Changshu Shengchang Rare Earth Smelting Company 196
Guangdong Zhujiang Rare Earth Company 166
Ganxian Hongjin Rare Earth Company 102
Exporting Company: Foreign-Owned Allocation (tonnes)
Baotou Rhodia Rare Earth Company 867
Zibo Jiahua Advanced Material Resources Company 805
Jiangyin Jiahua Advanced Material Resources Company 481
Yixing Xinwei Leeshing Rare Earth Company 440
Liyang Rhodia Rare Earth New Materials Company 324
Huhhot Rongxin New Metal Smelting Company 296
Baotou Tianjiao Seimi Rare Earth Polishing Powder Company 251
Baotou Santoku Battery Materials Company 127
Baotou Huaxin Smelting Company 93
Pingyuan Sanxie Rare Earth Smelting Company* 62
Sub-Total: Chinese-Owned 10,762
Sub-Total: Foreign-Owned 3,746
Total for H1-2011 14,508

* The quota allocated to Pingyuan Sanxie Rare Earth Smelting Company is provisional, and will only be allocated once its infrastructure improvements have been inspected and approved by a local regulatory agency in March 2011.

The detailed breakdown of quota allocations published by the Ministry includes a formula that was apparently used to allocate quotas to individual companies. In a nutshell, this formula takes the overall export quota value of 14,508 t and divides it between the various companies on the basis of three factors, each with their own specific weighting:

  • The tonnage of rare-earth materials exported by each company in the prior three years, as a proportion of the total exports in that period (X) ;
  • The value of rare-earth materials exported by each company in the prior three years, as a proportion of the total value (Y);
  • The tonnage of rare-earth materials exported by each company in 2009, as a proportion of the total exports in that year (Z);

The heaviest weighting was given to the first factor above. The specific formula published was as follows:

Individual H1-2011 quota = (total quota) * ((0.85 * (A1 + A2)) + (0.15 * A3))

where A1 = 0.9 * X, A2 = 0.1 * Y and A3 = Z

This is a similar formula to that used in at least the last few years, although the weightings applied to each factor have changed over time.

If we do a little further mathematics here, we can see that

Individual H1-2011 quota = (total quota) * ((0.77 * X) + (0.09 * Y) + (0.15 * Z))

We can compare the weightings applied to each factor for H1-2011, with those used by the Ministry for H1-2010, which equated to

Individual H1-2010 quota = (total quota) * ((0.70 * X) + (0.08 * Y) + (0.22 * Z))

with Z in this case referring to tonnage shipped in 2008.

We should note that the allocations are dominated by the previous shipments made by specific companies, which in years prior to 2010, did not always match the quota allocated. The formula was thus designed to partially re-allocate future quotas to companies that were making good use of them in prior periods. 2010 presents an obvious hiccup in this approach, given the likelihood that most if not all companies will have met or even exceeded the quotas allocated to them.

Still, the formula used remains largely the same as in prior years, albeit with slight adjustments to the factor weightings.

(A big "thank you" to my friend and former colleague Chun Li, for his assistance in interpreting parts of the Chinese Ministry of Commerce's Web site).

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1 Kyle M December 30, 2010 at 6:21 pm

Gareth,

Another really informative post, thanks.

Happy New Year to you and Jack.

Kyle

2 Dr. Dietmar Siebholz, Germany December 30, 2010 at 8:07 pm

Dear Jack, dear Gareth,

let me take the opportunity of your last informaton about the individual quotes of the Chinese REO companies to say THANK YOU to you.
You have helped me to educate the interested people of the German commodtiy scene bout the strategy of China, the consequences of the wrong Westeuropean commodity supply strategy and a good investment strategy in REO´s or REO exploring companies.

Best regards and I wish you a Happy New Year

Dr. Dietmar Siebholz

3 Wayne Milford Assàm December 30, 2010 at 11:42 pm

Dear Gareth

Once again you have gifted us with uniquely insightful research and analysis – congratulations, many thanks, and a Happy New Year to you and Jack!

Wayne Milford Assàm

4 Isaac Wang December 31, 2010 at 12:02 am

Dear Gareth,

Thanks for your updated articles which is very much help for us to determining the investment into the RE industries. Thanking you again and wishing you and your partners a very Happy New Year.

Best Regards,

Isaac Wang
General Manager
CoCo Finance Limited

5 Graeme Irvine December 31, 2010 at 4:36 am

Gareth.

Excellent work as always. Does this give you any thoughts for H2 11? The Ministry appears to have warned against reading too much into these figures.
Graeme

6 Aat Oskam December 31, 2010 at 5:15 am

Gareth,
as always a very detailled and well commented article!
Thanks again,
Happy NewYear to you and Jack.

Greetings from Holland
Aat Oskam

7 Jack December 31, 2010 at 11:02 am

Wow! I don’t think the general public really understands the impact of this kind of control. Maybe this should be posted on weeky leaks. I own a company called Rare Earth Exploration LLC and this kind of news is going to be a big factor in drumming up investors for futher exploration of our Rare Earth and Copper porphyry properties in Utah. Thanks JWR

8 Rich Allen December 31, 2010 at 4:06 pm

Gareth:

Who do you like in the heavy REE field?

9 Gareth Hatch January 1, 2011 at 2:17 am

Thank you for your kind words, everyone :-)

@Rich Allen: watch this space for a new feature coming very shortly to the TMR Web site, that will help me to answer your question :-)

10 Tek January 1, 2011 at 2:57 pm

Gareth,

Thanks for yet another superior article. Over the past couple years this sector has gone from 10-15 candidate companies to over 270. I made my picks then and stuck with them and they are doing quite well. (AVL, GWG, QRM, UCU). But now, as we all predicted, we’re in the maelstrom of hundreds of companies making thousands of claims, and it’s easy to get thrown off. So I too would welcome some updated analysis on picking some additional investments for 2011, as the indicators are that this may well be an even more explosive market for a few well situated companies and their subsequenst investors. So, are you ready to update last year’s projections into 2011?

Thanks again and Happy New Year to all of you, and yours.

11 ArlenF January 1, 2011 at 4:52 pm

Another superb analysis. The information that you and Jack have shared has been extremely helpful.
I am in doubt, however, about just what these data include. Perhaps I missed it elsewhere, but I’d like some guidance on how much of the spectrum from raw ore to finished magnet or other product these numbers include.
Thank you.

12 Gareth Hatch January 1, 2011 at 7:53 pm

@Tek: we’re still working on it – hopefully you’ll see something in the coming week.

@ArlenF: I’m working on trying to obtain the complete list of compounds and will share it once I’ve received it. I will say that it does not include, for example, finished permanent magnets, or to my knowledge, permanent magnet alloys, at this time at least.

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