China has also moved to make political gains from its dominant role in the sector.
Japanese companies said rare earth deliveries stagnated after Japan detained a Chinese fishing boat captain following a collision with a patrol vessel in disputed waters. China has denied any special curbs on exports.
More recently, a consultant to Taiwan's government told Dow Jones Newswires that Beijing had discussed giving the island greater access to China's rare earths in an apparent effort to gain goodwill with its government.
In the latest move, Beijing said it is raising the tax on light rare earth ores to 60 Yuan a tonne from 0.4-3 Yuan a tonne as of April 1, while hiking the tax on heavy ores to 30 Yuan a tonne, also from 0.4-3.0 Yuan a tonne.
"(China will) greatly increase rare earth taxes and refine its pricing mechanism to reduce the excessive profits in the rare earth mining industry," the State Council said.
China will also raise the threshold for companies applying for export quotas, though it didn't say whether this will reduce the number of qualified exporters.
China granted quotas to 22 Chinese companies and 10 foreign companies this year.
The Commerce Ministry said it will start imposing export quotas on ferroalloys containing more than 10 per cent rare earth minerals by weight, effective today.
This year, China began imposing 25 per cent tariffs on exports of alloys with more than 10 per cent rare earth content.
Before the latest announcements, China had issued export quotas for rare earth primary products, including minerals and oxides, but its quotas didn't include alloys.
Rare earth alloys include rare earth ferrosilicon -with 17 per cent-37 per cent rare earth content -which is used as an additive in steel- and iron-smelting, and magnesium-rare earth, which contains 2 per cent-10 per cent of rare earth elements yttrium and gadolinium and is used in the aviation, automotive and defense sectors.
"Alloys like Dy-Fe alloy and terbium ferroalloy have a relatively high rare earth content, and including these alloys in the export quotas could help the government better regulate the industry and better protect resources and the environment," the Commerce Ministry said in a statement on its website, quoting an unnamed official at the ministry's foreign trade department.
Rare earths, comprising 17 elements, are usually categorized into two kinds - heavy rare earth, also called ion-absorbed rare earth, which is abundant in southern China, and light rare earth, which is found in northern China.
Heavy rare earths are more valuable, giving exporters an incentive to ship overseas for higher returns.
The State Council said it "clearly forbids" the resale of quotas and has promised to improve the system of allocating quotas.
People familiar with the situation have said previously that some companies with export quotas make big profits by reselling export quotas.
Beijing also pledged to combat illegal rare earth mining and mining above quota levels, as well as improve the export monitoring system to stamp out smuggling.
China is also building strategic stockpiles of rare earth metals, an effort that could give Beijing increased power in influencing global prices and supplies.
Surging rare earth prices have also triggered discontent in China's own downstream industries.
Some deep-processing companies are complaining that high raw material prices are squeezing profits, and they are unable to obtain the resource as some companies prefer to export rare earths for greater returns.
The State Council said it will halt approvals of rare earth separation projects in the next five years and "resolutely ban" capacity expansions at existing plants.
The article primarily sheds light on China’s effort to ‘oligopolize’ the rare earth export scene; some of its measures include higher export taxes, ‘forbidding’ the resale of export quotas and ‘ban’ of any new projects or expansion of current ones in the next five years. Over the years, profits in the rare earth mining industry have been rather excessive and illegal mining also has been a concern; in ‘regularizing’ this industry, the government aims to combat these problems. Effects of these measures include an increase of rare earth prices which have given the government political advantage due its dominant position but China’s own downstream industries have expressed discontent since they have to ‘compete’ to get a part of the supplier’s share and raw materials prices are squeezing their profits.
Protectionism refers to any effort on the government’s part to place certain restrictions on trade of goods and services between countries. It does this by a multitude of measures including tariffs, quotas, embargoes, export subsidies, import licensing and exchange controls. A Voluntary Exporting restraint, like the export quotas in China, is when the exporting country voluntarily restricts the number of goods it ships to its trading partners. An Export tariff is a tax on exports in an effort to encourage lower price resale to local buyers while attempting to increase prices in the international market; it also attempts to preserve natural resources.
Figure 1 shows the effects of the 25% export tariff imposed by the Chinese government on ferroalloys containing more than 10% rare earth metals by weight.
Firstly, the lines in green indicate the ‘free trade’ quantity (QFT) and price (PFT) had there not been any export tax. A 25% export tariff will make it more expensive (P FOREIGN TRADE) for rare earth metal to move from China to any other country worldwide thereby reducing the flow across the Chinese border, indicated by (QFOREIGN TRADE).
Eventually, this higher price will reduce worldwide import demand and will shift supply back to the Chinese market thereby inducing a reduction in the local rare earth price indicated by (P LOCAL TRADE).
Overall, the price effects of an export tariff are similar in direction to that of a VER, import quota and import tariff.
In relation to the article, one advantage of such a pricing strategy is that by controlling worldwide supply, trading prices for rare earth metals will be kept high. Moreover, since domestic supply inevitably goes up, China’s own downstream industries which need rare earth metals as raw materials for their own products might benefit financially by getting access to cheaper prices. Moreover, a certain percentage of the domestic supply can be stockpiled to give even a larger strategic advantage to Beijing, later in time, where it would find itself in an even more powerful position to influence global prices and supplies.
Some of the disadvantages are that due to the skyrocketing price of rare earth metals, international demand might dwindle so low that China might find itself in an excess supply, even after the domestic demand and stockpile has been met. To prevent this, constant monitoring of tariff rates and export quotas is inevitable which might be tedious. Another disadvantage is that illegal smuggling of rare earth metals will also become that much more valuable; smugglers will invent new ways of mining above quota levels since the stakes are higher.
Export quotas or tariffs are a good strategy for a 2-3 year period but in the long run, other countries might use similar strategies and China will end up paying a high price for its greed. Example – Currently, China imports more than 50% of the crude oil used nationwide and is the second largest oil consumer in the world. As its population rises, it is inevitable that by 2030, its oil imports will equal imports by the U.S today. Analysts have shown that proven Oil reserves in China will only last till 2020 and then it will start importing even more. All in all, it should be wary of its ‘trading attitude’ otherwise it might get a taste of its own medicine.
All in all, taking into consideration worldwide prices in rare earth metals and in terms of regularizing all the highly competitive rare earth companies into one organizationally cohesive whole, export tariff and quotas are the best strategies but economic subsidies to China’s own companies will also be helpful.