China cuts rare earth export quotas, U.S. concerned

A worker shovels cast-off tailings out of a channel underneath a pipeline that transports crushed mineral ore containing rare earths to a disposal dam near Xinguang Village, located on the outskirts of the city of Baotou in China's Inner Mongolia Autonomous Region in this October 31, 2010 picture.

Credit: Reuters/David Gray

BEIJING (Reuters) - China said on Tuesday it will cut its export quotas for rare earth minerals by more than 11 percent in the first half of 2011, further shrinking supplies of metals needed to make a range of high-tech products.

China produces about 97 percent of rare earth minerals, used worldwide in high-technology, clean energy and other products that exploit their special properties for magnetism, luminescence and strength.

The rare earth issue could further strain U.S.-China ties, which have been battered this year by arguments over human rights, Tibet, Taiwan, the value of the Chinese currency and North Korean military attacks on South Korea.

Chinese President Hu Jintao is due to visit the United States next month for talks with President Barack Obama that both sides hope can stabilize the vital relationship.

Beijing says its curbs are for environmental reasons and to guarantee supplies to Chinese clean energy firms it is trying to promote internationally. But it has also said its dominance as a producer should give it more control over global prices.

China's Commerce Ministry allotted 14,446 tons of quotas to 31 companies, which was 11.4 percent less than the 16,304 tons it allocated to 22 companies in the first half of 2010 quotas a year ago.

China slashed the export quota by 40 percent in 2010. The export restraints on rare earths has inflamed trade ties with the United States, European Union and Japan in particular.

In Washington, the U.S. Trade Representative's office expressed concern over the latest announcement.

"We are very concerned about China's export restraints on rare earth materials. We have raised our concerns with China and we are continuing to work closely on the issue with stakeholders," a USTR spokeswoman said.

Last week, the trade representative's office said China had refused U.S. requests to end export restraints on rare earths, and the United States could complain to the World Trade Organization, which judges international trade disputes.

TURBINES AND HYBRIDS

Wind turbines and hybrid cars are among the biggest users of rare earth minerals, which analysts say are facing a global supply crunch as demand swells. The minerals are also used in some weapons systems.

This little-known class of 17 related elements is also used for a vast array of electronic devices ranging from Apple's iPhone to flat-screen TVs, all of which are competing for the 120,000 tons of annual global supply.

While industrial users of rare earths in industrialized countries face tighter supplies and higher prices, China's export curbs have created opportunities to open mines or revive dormant production in Canada, Australia and the United States.

After China's announcement, shares of Molycorp Inc, the Colorado-based company that owns a rare earth mine in California, rose as much as 11.6 percent.

But the headline-driven surge in a firm whose value has tripled since July proved only temporary, in part reflecting the fact that Molycorp's rare-earth mine in Mountain Pass, California, is due to come back online only late next year.