Production shifts to China for rare earths

Aug. 25, 2011 at 1:28 PM
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BEIJING, Aug. 25 (UPI) -- As China tightens its grip on rare earth minerals, more foreign companies are moving manufacturing operations to China to gain access to the elements.

China said this week it would appeal the World Trade Organization's ruling last month against the country's industrial minerals export policy. The WTO decision was hoped to affect China's stronghold on rare earths, a group of 17 elements crucial for green energy and high-tech components.

Prices for rare earths continue to skyrocket, sometimes doubling or tripling.

China has about one-third of global rare earth deposits but produces about 95 percent of the world's supply. Already, Beijing cut its export quotas on rare earths by 72 percent in the second half of last year, reducing them further by 35 percent in the first half of 2011.

For industrial products containing rare earths that are manufactured in China and later exported, however, China imposes no quotas or export taxes and sometimes no value-added taxes as well.

Fremont, Calif., company Intematix, maker of phosphor materials and components for LED lighting, has moved some of its manufacturing to China while developing alternate phosphors in the United States.

"We saw the writing on the wall -- we simply bought the equipment and ramped up in China to begin with," Mike Pugh, director of worldwide operations for Intematix told The New York Times.

Noting that the company would have preferred to build its new factory near its U.S. headquarters, Pugh insists the China move was based on reliable access to rare earths, so as not to be concerned about quotas or export taxes.

"I think this is what the Chinese government wanted to happen," he said.

While China accounted for 60 percent of global consumption of rare earths by tonnage early this year, that could rise to 70 percent by early next year if companies continue to move manufacturing to China at the current rate, said Constantine E. Karayannopoulos, chief executive of Canadian company Neo Material Technologies, one of the largest processors in China of the raw minerals.

A report by rare earth expert Garth P. Hatch of Technology Metals Research LLC estimates that China has produced 118,900 metric tons of rare earth in 2010, far higher than the official total of 89,200 metric tons.

Hatch told The Wall Street Journal that Beijing's quotas on rare earths have little effect on production, with output "driven by overall demand for these materials, within China and in the rest of the world, not the export quotas."

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