China Considers Rare-Earth Reserve in Inner Mongolia

By Bloomberg News

Sept. 2 (Bloomberg) -- China, holder of the world’s largest rare-earths deposits, may build a strategic reserve in Inner Mongolia, strengthening its control over materials used in technology ranging from iPods to guided missiles.

Inner Mongolia, which contains 75 percent of China’s deposits, is in talks with the central government to build stockpiles to support prices, Zhao Shuanglian, deputy chief of the province, said at a press conference today in Beijing.

China, which imports most of its iron ore, oil and copper, is tightening control over supplies of rare earths, a range of more than 15 elements such as scandium and lanthanum. Shares in Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co., the main producer in the province, surged 7.6 percent in Shanghai trading today after Zhao said the company will take over smaller rivals to consolidate the industry.

“The plan of building a national reserve stockpile is part of a government-level strategy to protect the resources of rare earths and prevent it from being sold cheaply,” Liu Minda, analyst at Huatai Securities Co., said by phone from Nanjing.

Inner Mongolia produces 50,000 metric tons of rare earths every year, 6 percent of which is exported, Zhao said. Some of the minerals are used by companies including Apple Inc. and Toyota Motor Corp.

“Rare earths is the most important resource for Inner Mongolia,” Zhao said. By cutting exports and controlling production, we want to “attract users of rare earths to set up in Inner Mongolia” to develop manufacturing, he said.

WTO Clash

China cut output quotas on rare earths this year to ensure sufficient domestic reserves and arrest a decline in prices caused by the global recession. The government has been trying to support commodity companies, and this year bought aluminum and zinc from domestic smelters after metal prices plunged and led some companies to report losses.

The government’s export restrictions on raw materials drew a complaint from the U.S. and European Union in June. China was accused of using taxes to discourage the export of metals and chemicals including bauxite, magnesium, manganese and zinc.

“China’s policies on these raw materials put a giant thumb on the scale in favor of Chinese producers,” U.S. Trade Representative Ron Kirk said in June. “China is a leading global producer and exporter of the raw materials in question, and access to these materials is critical for U.S. industrial manufacturers.”

China this week said it appointed Wang Qingyun as head of its State Reserve Bureau, the agency in charge of stockpiling commodities such as copper. Wang, 54, had previously served as head of the transportation division at the National Development and Reform Commission, the country’s top economic planner.

Quota Cuts

Rare earths are used to build mini hard-drives in laptops, make headphones for Apple’s iPod, in catalytic converters in cars and to make small electric motors in parts such as windscreen wipers and seat adjustors. They may refer to any of a large family of chemical elements consisting of scandium, which has the atomic number 21, yttrium (39), and 15 elements from lanthanum (57) to lutetium (71), according to the Encyclopedia Britannica.

China cut 2009 output quotas by 8.1 percent from a year ago to 119,500 tons, the Ministry of Industry of Information and Technology said May 18.

Baotou Steel Rare-Earth rose 7.6 percent to close at 22.30 yuan in Shanghai after Zhao announced plans for mergers of rare- earth companies. The stock has tripled this year, compared with a 48 percent gain of the benchmark Shanghai Composite Index.

“The purpose of the consolidation is to use Baotou as the head of a conglomerate that can create a certain economy of scale in the industry,” Zhao said.

--Xiao Yu, Eugene Tang. Editors: Tan Hwee Ann, Richard Dobson.

To contact the Bloomberg News staff on this story: Xiao Yu in Beijing on yxiao@bloomberg.net;