China denies any rare earth mineral export embargo

China sought Wednesday to reassure the world it had not and would not use its chokehold on supplies of critical rare earths for political purposes, and pledged to maintain its exports.

“China will continue to supply rare earths to the world,” the Commerce Ministry said in a faxed statement, denying earlier reports in the official China Daily newspaper that the government planned to cut exports next year by 30 percent.

While insisting that politics is not being played with the class of minerals, the government nevertheless has been cutting exports for the past three years. Rare earth elements are crucial to the manufacture of many high-tech items, from smart bombs to mobile phones to wind turbines. China mines 97 percent of the world’s supply.

Related story: Why China's lock on market for rare earth elements matters

In a separate statement, a Commerce Ministry spokeswoman who identified herself only as Ms. Chen denied a report in The New York Times that China had halted shipments of rare earths to the United States and Europe.

“China has not imposed any embargo,” she said. The report followed suggestions last month that China had banned rare earth exports to Japan.

Market control, nothing personal

Any recent interruptions in exports of rare earths were due to the export quota cut in July argues Mary Zhang, a rare earths analyst with Asian Metals, a Beijing based market research firm. “Export quotas are very tight,” she says.

Some exporters have exhausted their annual quota and others “do not want to accept orders at the moment because they are expecting higher prices,” Ms. Zhang says.

China slashed its six month export quota by 72 percent in July, arguing the country needed to protect its supplies for the future.

The world woke up to China’s control of the world market in the 17 strategically and economically important rare earth elements following reports last month that China had suspended sales of them to Japan during a territorial dispute.

Questions of motive

The Japanese trade minister has accused China of imposing an embargo, which Beijing has denied.

The New York Times report Wednesday suggested that a halt in shipments to the US was linked to the US Special Trade Representative’s decision Friday to investigate charges that China is illegally subsidizing its green tech sector.

Among the allegations brought by the United Steelworkers in its complaint to the USTR was that Beijing is restricting the export of materials needed for green technology in order to force US manufacturers to relocate in China so as to ensure access to such materials.

Deng Xiaoping, the leader who put China on the path to economic reform, once compared China’s reserves of rare earths to Middle Eastern nations’ supplies of oil. The recent reports of export restrictions have raised fears that Beijing might one day impose an OPEC-style embargo.

Chinese premier Wen Jiabao sought two weeks ago to allay such concerns. “China will not use rare earths as a bargaining tool” he pledged at a meeting with European business leaders. “China will meet domestic and world demand.”

Cutting back

It is clear, however, that China intends to cut back on the production and export of rare earths, a policy it has followed since 2007. “China will continue to restrict the exploration for and production and export of rare earths but these measures will not conflict with WTO principles” governing free trade, the Commerce Ministry statement said.

An article this week in the People’s Daily, the official mouthpiece of the ruling Communist party, insisted that China was wise to guard its rare earths.

“China now satisfies 90 percent of the world’s needs with 30 percent of the world’s total reserves, which is not sustainable in the long term,” the article argued.

The United States, Russia, and Australia all have significant reserves of rare earths, but mining them has proved uneconomical at usual world prices and environmentally harmful. Producers in those countries have closed their mines in recent years, leaving China almost alone as a supplier.

Ms. Zhang, the metals analyst, says she believes that market forces rather than government decisions explain interruptions in Chinese rare earth shipments that traders have reported.

Some of the 33 Chinese and foreign companies licensed to export rare earths cannot fill their orders because they have exhausted their quotas, she says. And with the price of some elements such as Lanthanum and Cerium six times higher than they were earlier in the year, smugglers are seeking quick profits by disguising shipments of such materials as ceramic or other industrial powders.

“Chinese customs are checking each export deal very carefully,” Zhang says.