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China’s rare-earth producers face a series of setbacks

13 August, 2013

It appears that Chinese attempts to restrict its exports of rare-earth materials and to raise their prices may have backfired. Exports last year were more than 40% down on their peak levels, prices have dropped, some producers have gone out of business, and illegal mines and smugglers are thriving.

In addition, a group of Chinese rare-earth companies are in a legal dispute with Hitachi Metals over patents covering neodymium-iron-boron magnets.

Rare-earth materials are a key ingredient of high-power permanent magnets used in high-efficiency motors and many other applications. In recent years, China has dominated the global production of these materials, accounting for around 95% of the world’s supply. In 2009, it raised prices of some of the materials nine-fold, cut back on production, and blocked supplies to Japan following a dispute between the two countries.

China’s output of rare earths has fallen from 129,405 tonnes in 2009, to 76,029 tonnes last year. At the same time, mining of rare earths has been revived in countries including Australia and the US, and recent reports suggest that there are substantial untapped reserves of the materials in other nations including Greenland, Vietnam, Brazil, Mongolia and Afghanistan. According to one report, Greenland alone could satisfy a quarter of global demand for rare earths for 50 years.

As these new sources of the materials come on stream over the next few years, China’s stranglehold on the market will loosen. According to one Chinese industry source, quoted in a recent article in China Daily, China’s share of the global market is expected fall from 95% to 73% by the end of 2015.

Rare-earth prices have been falling and, according to the article, profits in the Chinese rare-earth industry plummeted by 32.1% last year. Several producers have dropped out of the market. At the same time, users of rare-earth materials have been trying to reduce their dependency on the materials by, for example, turning to alternative motor technologies.

A further problem is the illegal production of rare-earths in China, which is estimated to have reached 40,000 tonnes of ore last year. In the past two years, the Chinese government has closed down 14 illegal rare-earth mines and uncovered a similar number of smuggling operations. The government has recently launched a crackdown to tackle the illegal exploration, production and distribution of rare-earth materials, and to regulate rare-earth recycling companies.

Rare-earth materials: an end to China's stranglehold in sight?

In a separate development, 12 Chinese rare-earth companies have formed an alliance to sue Japan’s Hitachi Metals in China and the US over rare-earth magnet patents that the Chinese regard as being invalid. They are also accusing Hitachi of infringing patents held by Chinese companies.

The dispute centres on magnets made from neodymium-iron-boron (NeFeB) compounds that represent more than half of the use of rare-earth materials. In August 2012, Hitachi asked the US to stop the sale of these magnets if they did not hold patent licences. Although three Chinese companies have subsequently agreed to buy licences from Hitachi, others say that Hitachi no longer has a right to the patents, one of which expired in 2003. Another is due to expire in 2014, but Hitachi has extended its expiration to 2029, which the Chinese companies regard as being invalid.

According to another report in China Daily, many Chinese manufacturers of products incorporating NeFeB magnets can not export them because they do not have licences from Hitachi Metals. Out of around 200 companies producing about 80,000 tonnes of NeFeB magnets in China each year, only eight have patent licences from Hitachi. The Chinese producers say that Hitachi will not sell its patent rights and accuse it of setting up trade barriers.

Meanwhile, there has been better news for China’s rare-earth materials producers in recent months, with exports growing each month since February. During April, exports were 600% higher than a year before.

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