China's rare earth

Rare earths is a term used to refer to a specific set of minerals that are used heavily in the manufacture of modern electronic goods such as cell phones, batteries and computer parts. China happens to be the largest exporter of these minerals. Due to the high demand and the difficulty in extracting these minerals, China finds itself in an interesting position. Being the largest exporter for products in high demand allows them to control most of the market. This being the case, China has slowly been cutting their yearly export quotas which in turn makes the price for these materials increase. In July, they cut it by 40% which caused prices to increase at an unprecedented rate. This year’s sales are estimated at 125,000 tons costing in the neighborhood of $2 billion dollars.

Apparently China justifies this decrease in exportation as an environmental degradation concern but this standpoint has left a few in doubt. In an article in the economist, the author speculates that:

“The real reason is probably to persuade foreign firms to move manufacturing to China before non-Chinese mines are on stream and its market control ebbs.”

This move however may in fact be counterproductive because a slew of new exporters including California are beginning to see a surge in the number of their exports. It will be interesting to see if this will indeed affect China due to 60% of their demand being domestic.

http://www.economist.com/node/17155730