Chinese Rare-Earth Statistics Lost In Translation?

by Gareth Hatch on December 10, 2012 · 11 comments

in China, News Analysis, Rare Earths

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Over the weekend we saw a number of articles make reference to a China Daily article titled “Smuggling blights rare earth industry“, whose authors report that a “senior official from the General Administration of Customs” has said that the smuggling of rare earths outside of China continues to increase.

The authors go on to refer to the white paper on rare earths issued by the Chinese government in June 2012, claiming that the white paper said that “the amount of rare earths smuggled out of China was 20 percent higher than the amount of products that legally left the country“, and that this equates to more than 21,000 tonnes of smuggled rare earths. Coupled with the 18,600 tonnes of rare earths exported through official channels, this would imply total exports of 39,600 t of rare earths from China in 2011.

Unfortunately, the arithmetic above does not match the numbers to be found in the aforementioned white paper – at least not in the English-language version of it.

The white paper specifically says that:

“From 2006 to 2008, the volumes of rare earth products imported from China, according to statistics collected by from foreign customs, were 35 percent, 59 percent and 36 percent higher than the volumes exported, as statistics released by the Chinese customs show, and the figure from foreign customs is 1.2-fold over the Chinese figure in 2011.”

One can easily determine that the term “1.2-fold” refers to the foreign customs figures being 1.2 times the figures recorded by the Chinese authorities in 2011 (i.e. 120% of them), because this would put the value in the same order of magnitude as the numbers stated for previous years. More important, 2011 was the year in which rare-earth prices peaked, and in which end users made successful efforts to reduce or to eliminate light rare-earth usage from their supply chains as a result. In “normal” years, lanthanum and cerium oxides typically constitute 60-80% of all rare-earth exports by mass; it has been well-documented that catalyst manufacturers and users of glass-polishing compounds (two of the most significant applications for these two rare earths) significantly reduced usage in 2011.

It is therefore self-evident that there couldn’t possibly have been a non-Chinese market for almost 40,000 tonnes of rare earths in 2011. The discrepancy between Chinese rare-earth export figures and the rare-earth import figures from foreign governments that were cited in the white paper, is therefore around 20%, or 3,720 tonnes of shipments sent via non-official channels, not the more than 21,000 tonnes that the China Daily article would have us believe.

Is this a simple mis-understanding of the numbers, or something more deliberate? I leave that for the reader to decide. Whatever the reason for the discrepancy, it illustrates the problem of uninformed commentators (in the rare-earth sector and elsewhere) simply regurgitating such information, without doing even the simplest of fact checking.

There is also the growing issue of certain commentators coyly playing the role of ‘mouthpiece’ for the Chinese government on related topics, but that’s a story for another day…

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1 G H December 10, 2012 at 2:44 pm

Great catch, Gareth! Perhaps you can find someone who can read Chinese who can help answer the “deliberateness” question?

Your point about mouthpieces is well taken. It’s hard to tell whether it’s any more of a growing issue with respect to information about China than other topics of intense interest. (For example, pseudo-experts about Apple Inc have been popping up ever since it took over the “largest market cap” slot.) But the Chinese language barrier and restrictions on free speech do seem to have opened the door to a peculiar kind of pseudo-authority.

Just one more unforeseen consequence of globalization!

2 Lin Chaowei December 11, 2012 at 8:34 am

Hi, Gareth. Having compared the numbers mentioned in two versions of the white paper, I believe it’s not a mistake in translation. Maybe it’s a question about the statistical sources.

According to previous information from related commentators, we have concepts that the amount of smuggling is 20 percent higher than that of product in legal way every year, i.e. 20,000+ tonnes of smuggled rare earths. Take account of environmental concerns & over-exploitation, the Chinese government have decided to decrease both of the total production and export. However, it’s hardly possible to suppress the illegal exploitation and subsequent smuggling effectively in recent years. Therefore, the number around 20,000 matches the term “1.2-fold”.

It should also be mentioned that the commentators usually don’t give the clear data sources and/or links in their information. As results, I also couldn’t trace back to the original sources. What a bad manner!

Anyway, it’s questionable!

3 Gareth Hatch December 11, 2012 at 9:45 am

@G H: thanks for the feedback.

@Lin Chaowei: I’ve said before that there is undoubtedly a quantity of rare earths that gets shipped out of China labelled as something else. Whether those shipments are identified correctly when they arrive at the customs authorities of the importing countries is a different matter. The fact remains that the largest quantities of exports in recent years has been been for lanthanum and cerium oxides, the demand for which was severely curtailed as a result of pricing. This issue of smuggling is clearly being exaggerated.

4 jostwu December 11, 2012 at 9:48 am

Hi Gareth,

the Chinese version of the white paper corresponds with the english version. It does not mention the ominous 21,000 tons.

The Chinese version says
” ——???????????????????????????????????????????????????????????2006??2008?????????????????????????????????35??59??36??2011?????1.2??”

Actually, the 21,000t, quoted by the China Daily article do not surprise me very much. For example, many Chinese journal articles made reference to an estimate that 1/3 of the actual Chinese exports have been smuggled out in 2009 and that this would account for above 20,000t – maybe that could be the source of this number. If this is the case, the authors fail to take into account the efforts that the Chinese customs has made in the last three years to tackle the smuggling of rare earths.

Bests,

Jost Wübbeke.

5 Gareth Hatch December 11, 2012 at 10:03 am

@jostwu: it is possible that there has been an underlying quantity of rare earths that has been smuggled out for years, labelled as other things, and that all told this could be over 20,000 t of such materials. However, the white paper really makes no mention of that – the source of the 21,000 t + number is clearly a misrepresentation of the term “1.2-fold” as applied to the official numbers. I see that there was at least one other article from China Daily in which they made the same “error”.

6 Bob M December 11, 2012 at 3:13 pm

The Congressional Research Services put 2010 world demand at 136, 000 metric tons in their June, 2012 report. Dudley Kingsnorth recently put world demand at 115,000 tonnes. The difference is 21,000 tonnes. Same figure as China Daily. Interesting, but maybe just a coincidence. But demand was not supposed to go down.

Chinese export smuggling may be huge (doubtful) or smaller (more likely). But the question of world demand is equally important in itself as well as trying to get the true picture of Chinese smuggling. Are manufactures producing fewer gadgets, or are they putting in less rare earths in the gadgets? Or are they using a huge amount of smuggled rare earths? All I can surmise is that something is going on in the world market and it is in the range of 21,000 tonnes presently.

7 Gareth Hatch December 11, 2012 at 3:34 pm

@Bob M: The Congressional Research Serivce does good work, but their figure of 136,000 t of demand in 2010 came from a Bloomberg article that in turn quoted numbers from Lynas. They also quote the USGS estimated production numbers of around 133,600 tonnes in that year, but it is my opinion that the USGS is way high on that, based on my own research, as detailed in my Critical Rare Earths Report published last year. I tend to ignore the USGS figures on rare-earth “reserves” too since they are woefully out of date.

Prof. Kingsnorth’s estimated rare-earth demand numbers for 2010, 2011 and 2012 are 125,000 t, 105,000 t and 115,000 t respectively. Clearly there was a drop in demand because of the price hikes – despite the (erroneous) conventional wisdom that continues to propagate that rare-earths cannot be substituted. Apparently someone failed to inform the catalyst and glass-polishing industries on this point, since they reduced and in some cases completely eliminated the use of light rare earths such as La and Ce from their products…

As for other applications – there were significant changes in the magnet industry, to give one example. Designs were switched away from Nd-Fe-B magnets containing Dy, to those that do not (such as Sm-Co, ferrite and Alnico materials); they were also switched from Nd-Fe-B material grades with higher Dy content to those with lower Dy content; and some designs that kept the Nd-Fe-B magnets (containing Dy) were changed to reduce the overall amount of magnet material required, to achieve the same performance.

8 Gareth Hatch December 11, 2012 at 3:41 pm

@Bob M: the original quotes from Lynas can be found here: http://bloom.bg/akPHrx . I was at the Oct 2010 conference at which their COO is quoted by Bloomberg as saying “You’re not going to stop using rare-earth materials because the price is going up”.

Clearly, that statement turned out to be incorrect…

9 Bob M December 11, 2012 at 11:08 pm

Hi Gareth. Yeah, I saw the source of the CRS estimate of 2010 demand. I assumed they had corroborating evidence from USGS, but now that I look more closely on your recommendation, I doubt it. Good catch.

I hope you continue to work on world demand. We (shell-shocked) investors need more reliable work than what the other sources have offered us so far. You’ve helped a lot.

10 Tim Ainsworth December 17, 2012 at 12:59 pm

Hi Gareth,
Just came across a report that adds considerably to your “someone failed to inform the catalyst and glass-polishing industries on this point” from the magnet perspective.
Not good reading from a RE perspective, particularly as magnets are projected as the main driver of RE demand growth circa 9%pa: “Once quitted, it is very difficult for NdFeB to get into the market again, because a product has a certain life cycle, and changing design is not easy.”

Global and China Permanent Magnet Industry Report, 2012

http://www.sacbee.com/2012/12/05/5031994/global-and-china-permanent-magnet.html#storylink=cpy

11 Gareth Hatch December 17, 2012 at 4:13 pm

@Bob M: thanks for the comments. You’re absolutely right that tracking and understand demand is really important. It’s a bit of a truism to say that, I know, but one that a lot of investors seem to forget – relying instead on the usually optimistic prognostications of the junior-mining company promotions person of their choice ;-)

@Tim Ainsworth: thanks for the link Tim. I’ve started to look a bit closer on this topic and am in the process of gathering comprehensive data to get a better idea of what has been going on recently.

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