China's Ever Increasing Grip on Rare Earth Minerals, Patrick London

The debates over China's rare earth minerals continued this week and the outlook for consumers does not look promising. Although China claims that the materials will continue to be exported, they will remain tightly controlled. This firm grip on the goods insures that China essentially has total say in a market they control 97% of.

Rare earth minerals are a group of metallic elements that are used in the production of several new technologies such as hard drives, television, catalytic converters and wind turbines.

Several quotas have been implemented on the extraction of minerals in order to assert control over when and how much is being used. The second half export quota for the minerals was reduced by 72%. China claims this reduction is is in response to the factories pollutant output and their desire to keep the levels low. It is no coincidence then that the prices of the rare earths have increased 15 fold since the quotas were imposed in July. According to Li Zhong a deputy manager of Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. China may even plan to reduce the number of rare earth oxide producers to 20 from 90 by 2015.

China's Commerce ministry said in a statement 10/19/10: "The nation will continue to supply rare earth to the world while maintaining restriction on exports to protect exhaustible resources and ensure sustainable development".

An interesting factor to consider in this equation is that the U.S., Canada and Australia have a wide array of untapped resources from which to draw on. Actually the U.S. was completely self sufficient with rare earth minerals until the 1980s before the lower labor wages made China top dog.  As of 2002 a California based rare earth mine was shut down, but due to the influx of trade disputes will reopen this year according to Molycorp inc., the owners of the mine. This reopening could theoretically create more market competition but will likely not be enough to compete with China.

China is also still creating waves with Japan over their recent political relations ordeal. The exports of rare earths to Japan, one of the world's top importers have recently come under difficult customs duties and delayed shipments. Many speculate that this is directly linked to their recent debate over the governance of the South China Sea. This debate began when a Chinese fishing vessel ran into two Japanese boats and the crew was taken prisoner. China claimed this act to be unlawful and demanded the crews return. After several fiery debates, the crew and captain were returned to China. The question remains however, who has rights to these waters? While Japan has legal control, China still claims dominance. This would likely not be such a hot debate if the waters did not contain vast amounts of potential oil.

Not only has China continued to impose several customs and trade difficulties, they have also begun patrolling the disputed waters. On Sunday, several Chinese boats were spotted by the Japanese coastguard. There were also protests in China and Japan this past weekend over the matter.

Although China continues to be the top producer of these rare earth minerals, their actions may get them into trouble somewhere down the line. Considering their recently imposed quotas, decrease in producers and increasing tensions with one of their largest trade partners, China seems to be creating agitating ripples throughout the market.