China prompts rare earth consumers to look elsewhere

BEIJING, Oct 22 (BestGrowthStock) – Japan and South Korea moved to
reduce their dependence on China’s rare earth metals on Friday
amid fears export reductions by Beijing could be the trigger
for a broader trade conflict as nations joust over currencies.

Reports this week that China halted shipments of rare
earths to Japan during a sea territory dispute raised fears
that Beijing could use its global dominance of supplies as a
political lever.

China denied reports it planned to slash export quotas, but
with more than 90 percent of the global production of rare
earths coming from China, the reports triggered alarm.
[ID:nTOE69J03D]

Japan, the biggest consumer of rare earth metals — used in
products ranging from cellphones to solar panels — is set to
agree on a plan with Vietnam later this month to expoloit
minerals there, the Nikkei business daily said on Friday.

Bloomberg, meanwhile, said South Korea was seeking
cooperation with Japan and the United States to jointly develop
alternative sources.
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Graphic on rare earth metals: http://r.reuters.com/bam39p

Graphic on production and use: http://r.reuters.com/nax47p

Insider tv reports: http://r.reuters.com/gyk39p
http://r.reuters.com/juz58p

Factbox on rare earth elements: [ID:nN09251080]

Analysis of impact of shortages: [ID:nSGE69J0BC]
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Japanese trading houses Toyota Tsusho Corp (8015.T: ) and
Sojitz Corp (2768.T: ) are already preparing for rare earth
development in Vietnam, while Sumiotomo Corp (8053.T: ), another
trading firm, aims to start rare earth shipment to Japan from
Vietnam as early as 2013, the Nikkei said.

The agreement will be reached when Japanese Prime Minister
Naoto Kan and his Vietnamese counterpart, Nguyen Tan Dung, meet
in Hanoi on Oct. 31, the newspaper said.

Responding to the report, Sumitomo and Sojitz said plans
were still in early stages.

HIGHER DEMAND

Bloomberg quoted Kim Sang Woo, a deputy director at the
Minerals Resources Division of South Korea’s Knowledge Economy
Ministry, as saying he expected China would maintain export
caps and increase stockpiles to meet higher demand.

Sun Zhenyu, ambassador to the World Trade Organization,
told Reuters Insider that China’s own stocks of the rare
metals, for which it is the dominant supplier, were falling
fast and that Beijing had to conserve them. [ID:nLDE69K2AU]

“I think there will be probably not a very quick change in
the export quota mechanism of rare earths,” Sun said in an
interview on the trade implications of the five-year-plan,
unveiled this month.

China’s media has accused Western countries of making
unreasonable and hypocritical demands over the cheap supply of
rare earths.

“Rare earths are a commodity. Each country has the right to
decide how much it exports or imports. This is normal economic
behaviour,” the People’s Daily said.

“China has the absolute right to decide for itself how much
rare earths it can export and produce.”

But any cut in Chinese exports could rattle firms that use
the metals to make parts for vehicles, computers and cell
phones, missiles and new energy technology.

A slowdown in shipments may reflect a sharp drop in export
quotas, which has left over-committed traders scrambling to
cover orders placed in the first half of the year, analysts
say.

The rare earth concerns come as chances of global agreement
to tackle global economic imbalances and fend off the prospect
of damaging currency devaluations looked set to evade finance
officials at the G20 meeting in South Korea.

G20 finance officials started their formal meetings on
Friday with nations from the developing world and Japan
dismissing U.S. proposals to set limits on current account
balances in an effort to defuse tensions over currencies that
economists fear could trigger trade wars.

Experts say Vietnam is one of the main channels for
smuggling rare earths and other minerals out of China, a
practice that has grown as China’s more limited quotas reduce
legal channels for export.

About 20,000 tonnes of rare earths were smuggled out of
China in 2009, according to a note from by Eurasia Group
analyst Damien Ma, supplementing legal exports through that
year’s quotas of about 50,000 tonnes.
(Reporting by Ben Blanchard; Writing by David Fox; Editing by
Nick Macfie; [email protected]; +65 6870 3815)
(If you have a query or comment on this story, send an email
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China prompts rare earth consumers to look elsewhere