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Largest Rare Earths Producer Halts Output

China’s largest rare earths producer, Baotou, has suspended production for one month in an effort to prop up falling prices, in the clearest signal yet that Chinese producers are intent on supporting prices at high levels.

Bulldozer scoop soil containing various rare earth to be loaded on to a ship at a port in Lianyungang, east China's Jiangsu province in September, for export to Japan.
Stringer | AFP | Getty Images
Bulldozer scoop soil containing various rare earth to be loaded on to a ship at a port in Lianyungang, east China's Jiangsu province in September, for export to Japan.

China is the world’s biggest producer of rare earths, but tightening government controls and stockpiling has sent rare earths prices rocketing this year, with prices for some minerals increasing more than eight times during the first half of the year.

Rare earths prices have been sliding since their peak in July, but the slide has accelerated during the past week. Neodymium, which is used in magnets, has fallen 9 percent, while Lanthanum, which is used in fuel catalytic converters, has fallen 12 percent, according to prices from Shanghai Metals Market.

Baotou’s move suggests that Chinese efforts to control rare earths prices could be greater than previously thought. Traders have complained since last year that Chinese customs officials were forcing contracts to be rewritten to conform with a “secret list” of acceptably high rare earths prices, but that had less influence on the market during a time when prices were uniformly going up.

Rare earths are 17 metals critical to everyday life, with uses that range from fluorescent lightbulbs to BlackBerry vibrators and military radar systems. Although rare earths are not technically rare, China produces more than 95 per cent of the world’s rare earths, after cheap Chinese mines sent other rare-earths miners out of business during the 1980s.

After cutting export quotas last year, Beijing has this year focused on cleaning up the rare earths industry at the source, closing illegal mines and processing centres that were previously sources of pollution. Those in the industry believe that the rare earths reforms have also been aimed at increasing state control over the previously fragmented sector. In May, the government announced that three state-owned groups would take the lead in reshaping the industry in the fragmented southern sector.

Baotou, which controls about 40 percent of China’s rare earths production through mines in Inner Mongolia, said on Tuesday that it was suspending operations at all of its rare earths processing facilities in a bid to “stabilise the market and balance supply and demand”.

It is the second time in recent weeks that Baotou has tried to prop up prices, after very publicly purchasing neodymium at above-market prices last month. Baotou said the suspension, which begins on Wednesday, would also cut supplies of unprocessed rare earths to processing plants that buy from Baotou.

Shanghai share prices for Baotou fell 5.8 percent on Tuesday, against a broader market decline of 2.4 percent.

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