Chinese Rare-Earth Mining Quotas For 2012

by Gareth Hatch on May 13, 2012 · 12 comments

in China, Rare Earths

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When the subject of quotas for the Chinese rare-earth industry comes up, we're generally talking about export quotas, which control (in theory at least) how much material may be shipped out of China, in any given period, and by which companies. Such quotas are controlled by the Chinese Ministry of Commerce (MOC) and their existence is at the heart of the recent WTO complaints filed by the USA, Japan and the EU, against China.

There are, however, at least two other sets of quotas that affect the rare-earth industry in China. The first concerns the separation and smelting of rare-earth products, controlled by the Chinese Ministry of Industry and Information Technology (MIIT); the other concerns mining quotas, controlled by the Chinese Ministry of Land and Resources (MLR). Of the two, the mining quotas are usually the more prominent, and each year, usually sometime in March, the MLR publishes a list of the mining quotas that have been allocated to each province or region in China.

Each year that is, until this year.

For 2012, the MLR has taken a different approach to the allocation of mining quotas. The first difference is that the Ministry does not appear to have published a single list of mining quotas allocated to the provinces and regions, as it has in previous years. Instead, individual departments for land and resources within the provincial and regional governments were apparently sent a notice roughly titled "2012 Tungsten, Antimony And Rare Earth Mining Quotas (First Batch)" (a copy of which is not available online) indicating the mining quota allocated, and the companies to whom those quotas were to be assigned.

This latter point is also something of a change; it is my understanding that previously the provincial / regional government department got to decide which companies received the mining quotas. I'm going to assume that the MLR has stepped in here to ensure that only companies that meet the pollution control standards as overseen by the Chinese Ministry of Environmental Protection (MEP), may receive mining quotas. This is a similar situation with the allocation of export quotas by the MOC. Sources within China have confirmed that getting quotas of any type for rare-earth production these days, very much depends on being on the MEP's list of approved companies.

The other significant difference to previous practice, is the allocation of only a first batch of mining quotas to the provinces and regions for 2012. While this batching approach has been normal for rare-earth export quotas for years, to my knowledge this is the first year that it has been applied to the mining quotas. The associated provincial and regional announcements on the mining quotas generally reference the MLR's desire to reduce over-production of rare earths, and to maintain rare-earth price "stability".

Just like the split of export quotas by the MOC into light and medium / heavy rare earths for 2012, it is likely that this batching was done in anticipation of the WTO complaint, and gives China some options for the second batch for 2012 in terms of quantities (probably to be announced sometime at the end of Q3 2012). There is almost certainly significant excessive inventory of all finished rare earths in China at present, so even if the MLR decides to reduce the mining quotas for the second part of 2012, this would have little effect on actual availability (though the effects of the new invoicing system that has been mooted for months, may).

Reducing overall mining quotas for 2012 would bolster any response to the WTO complaint that relies on exceptions relating to pollution control and to protecting "exhaustible natural resources", as the Chinese could now justifiably point out that the overall restrictions that they have implemented, affect both domestic and foreign companies.

Of the 7 out of 9 provinces and regions that have announced their mining quotas to date, all but one have received a quota that is 50% that of their total allocation for 2011, with the 7th not far off. 2 of the provinces, Sichuan and Shandong, do not yet appear to have published any information on their mining quotas for 2012. Whether this is because the mining companies to whom such quotas would be allocated, have not yet passed the pollution control standards, or if it is simply because there has been a delay in publishing the numbers, I am not sure.

The numbers that I was able to obtain can be found in the table below, which also shows the allocations in previous years, for comparison.

Allocations of Chinese rare-earth mining quotas (t). Sources: Chinese Ministry of Land and Resources, provincial / regional Departments of Land and Resources, TMR estimates
Province / Region 2007 2008e 2009 2010 2011 H1 2012
Fujian 220 320 720 1,500 2,000 1,000
Guangdong 700 1,000 1,500 2,000 2,200 1,100
Guangxi 200 200 200 2,000 2,500 1,100
Hunan 100 300 800 1,500 2,000 1,000
Inner Mongolia 46,000 46,000 46,000 50,000 50,000 25,000
Jiangxi 7,400 7,400 7,400 8,500 9,000 4,500
Shandong 1,200 1,200 1,500 1,500 1,500 TBD
Sichuan 31,000 31,000 24,000 22,000 24,400 TBD
Yunnan 200 200 200 200 200 100
Total 87,020 87,620 82,320 89,200 93,800 TBD

It should be noted that in previous years, the estimated actual mining production of rare earths in China has been significantly higher than the total mining quotas allocated; in 2010, for example, Chinese sources estimated a total production of around 119,000 t, compared to the 89,200 t of total mining-quota allocations.

As and when we get hold of the numbers for Shandong and Sichuan, I'll update the table.

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{ 12 comments… read them below or add one }

1 Nevada George May 13, 2012 at 3:30 pm

Gareth

Thank you for keeping me updated.
I appreciate your informative articles.

George

2 bbqdays May 13, 2012 at 3:32 pm

Thank you Gareth. I am researching whether these quotas apply strictly to Chinese in-country operations.

"The first concerns the separation and smelting of rare-earth products, controlled by the Chinese Ministry of Industry and Information Technology (MIIT);"

I would think so, but this comment concerns me: "the Chinese could now justifiably point out that the overall restrictions that they have implemented, affect both domestic and foreign companies." I don't understand its meaning.

3 Gareth Hatch May 13, 2012 at 3:51 pm

@Nevada George: thank you for your comments.

@bbqdays: As mentioned in a recent article that I wrote on the WTO complaint, China is likely to cite certain exceptions to the usual rules of the WTO, which allow countries to implement measures that deviate from those rules under certain circumstances. The general expectation, however, is that such measures not discriminate between domestic and foreign participants, nor should they be a disguised attempt to interfere with international trade. Export quotas, by their very nature, clearly discriminate against foreign participants in the market. If, however, they were used in conjunction with measures such as reduced mining quotas, which would affect all market participants, then China's case for using such exceptions might be strengthened.

4 Henry LEWY May 13, 2012 at 4:22 pm

Dear Gareth,
many thanks for new Information of today. I appreciate your very informative work.
Best Regards

Henry

5 Arlen Gregorio May 13, 2012 at 6:14 pm

Gareth-
You say:
“There is almost certainly significant excessive inventory of all finished rare earths in China at present”
For some time I have been seeing speculation that the availability of the more critical rare earths may become seriously constrained, to the point that perhaps even domestic Chinese manufacturers might have trouble obtaining sufficient supplies of dysprosium, terbium and others.
I assume the quotas issued by MLR for H1 2012 do not contain breakdowns by metal type, or you would have shown them.
Is there anything in the information you have seen which would give you a clue about how the quotas will work in that regard?
Also, do you have any sense of when, if ever, the market might start moving toward constraints in supplies of some of the critical rare earth metals?
Thank you again for another excellent article.
TMR continues at the top of my list of investment research resources.
Arlen

6 bz1516 May 13, 2012 at 7:05 pm

An important piece to the puzzle. Perhaps the large inventory of finished product is the source of price weakness?

7 Gareth Hatch May 13, 2012 at 7:46 pm

@Henry LEWY: Thanks for your comments.

@Arlen Gregorio: The mining quotas are not broken down by individual rare-earth element, no. However, the quotas are allocated on a "light-rare-earth" or "ionic-clay" basis, with specific provinces and regions being allocated quota within these categories, on the basis of the type of deposits found within their borders.

Specifically Guangxi, Hunan, Inner Mongolia, Shandong and Sichuan are usually allocated light-rare-earth mining quotas; Fujian, Guangdong, Jiangxi and Yunnan are allocated ionic clay mining quotas. So if you look at the totals for 2011, 80,400 t of light-rare-earth mining quotas were issued, and 13,400 t of ionic clay mining quotas (do note that there are typically small amounts of heavy rare earths in light-rare-earth minerals, and significant proportions of light rare-earth elements in ionic clay deposits).

It can be argued that the constraints in the supply of critical rare earths started in the latter half of 2010, when export prices began to increase, and despite the peak last summer and the subsequent decline in prices, sourcing of such materials remains tight, especially heavy critical rare earths. Neodymium and dysprosium usage saw some decline last year because of the effects of the high prices, but as prices head towards where they were at the beginning of 2010, one can expect demand to pick up again (assuming we don't get hit with another global financial crisis, or GFC as my Australian friends like to call it).

@bz1516: much of the large inventories consists of lanthanum and cerium, because it was still being churned out last year despite the dramatic demand destruction as a result of the escalating prices. Chinese sources tell me that there are significant quantities of other rare earths warehoused too.

When this new invoicing system kicks in, a higher degree of provenance for rare-earth products will be expected, and this means there are / will be some traders who are trying to get rid of materials with, shall we say, less comprehensive paper work...

8 Pan May 13, 2012 at 8:40 pm

Dear Gareth,
Thank for your professional informations of rare earth. In my opinion, both government and enterprises in China have taken measures to exploit the rare earth reasonably. The global market will get more competitive.

9 Marc May 14, 2012 at 4:14 am

Dear Gareth,

Many thanks for your work.
Do you know where can I get more information about this new invoicing system for RE ?

Regards,
Marc

10 Barry Murray May 15, 2012 at 7:33 pm

So here is the result of California going bankrupt through capitalistic bureaucrat stupidity via a crusading District Attorney saving the World at Mountain Pass, CA, and Congressmen protecting Idaho through Geological Survey Bulletin 1304.

Sorry. You financial mining industry experts, as explained on MiningMagazines.com really aren't that bright.

11 mark May 24, 2012 at 6:41 pm

i will like us to have a business deal with my government on coal mining

12 Venky June 16, 2012 at 6:24 pm

Interesting article.

We all know about 97% of REE is from China and Chinese Govt is taking full account & control of REE exports today.

Where the world is heading now!

Most of the high tech electronic components needs the REE but clear shortage of supply vs demand.

I think WTO and related associations has to do something b4 we end up in supply.

Thanks for updates and sharing

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