China launches rare earth trading platform

BAOTOU, Inner Mongolia -- China on Wednesday launched a physical trading platform for rare earth metals as part of its efforts to regulate the sector and strengthen its pricing power for the resources.

The Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Co, China's top rare earth producer, and nine other firms and institutions jointly launched the platform with a total investment of 100 million yuan ($15.87 million). Each shareholder invested 10 million yuan and holds a 10-percent stake in the exchange.

The rare earth trading platform is located in the city of Baotou in north China's Inner Mongolia autonomous region, home to more than half of the world's light rare earth output.

Previously, China's rare earth market was largely opaque, as transactions were not made in public markets and always ran in small volumes. Only limited amounts of pricing and transaction data have been made available to the public.

The opaque market and the fact that Chinese rare earth producers far outnumber foreign consumers have weakened China in terms of price negotiations with foreign consumers, industry analysts said.

Ma Pengqi, a rare earth expert and former director of the Baotou Rare Earth Research Institute, said the trading platform will provide clarity and give China more say in deciding rare earth prices.

Some analysts, however, questioned the exchange's effect on stabilizing prices.

Liang Xingfang, general manager of Baotou Ruixin Rare-Earth Metal Material Co, said the spot market's role in stabilizing rare earth prices is limited.

"We have to wait and see how the exchange will work in the future," he said.

As the world's largest producer of rare earth metals, China now supplies more than 90 percent of the global demand for rare earth metals, although its reserves account for just 23 percent of the world's total.

Rare earth metals, a group of 17 metals, are vital for manufacturing hi-tech products ranging from smart phones and wind turbines to electric car batteries and missiles.

Mining the metals greatly damages the environment. In recent years, China has come down heavily on illegal mining and smuggling, cut export quotas and imposed production caps, stricter emissions standards and higher resource taxes to control environmental damage and stave off resource depletion.

However, these measures have irked rare earth importers, who complained about rising prices and strained supplies.

The United States, Europe and Japan in March jointly filed a complaint to the World Trade Organization (WTO) against China's export policies on rare earths and two other metals. The WTO established a panel last month to investigate the complaints.

Zhu Hongren, chief engineer of the Ministry of Industry and Information Technology, said China would abide by any decision made by the WTO, but the country must continue to tighten regulation in the sector.

The launch of the trading platform coincided with a major annual industry conference, the Baotou China Rare Earth Industry (International) Forum.

Su Bo, vice minister of industry and information technology, repeated Zhu's statement at the two-day forum that opened Wednesday, saying China will continue to crack down on illegal mining and smuggling, promote industry consolidation and properly handle international trade frictions.

China's rare earth output fell 36 percent year on year to 40,000 tonnes in the first half of the year. Prices of major rare earth products in July remained twice as high as prices at the beginning of 2011, although down from the beginning of the year.

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