BEIJING, April 5 (Xinhua) -- As China, the world's largest producer of rare earths, tackles concerns about an over-expansion of rare earth mining and its environmental damage, analysts say that this might signal an end to cheap rare earth supplies from China.
Rare earths, a collection of 17 elements in the periodic table, are among the most sought-after materials for modern manufacturing. In tiny amounts, their unique magnetic and phosphorescent properties make them vital ingredients for producing sophisticated products like flat-screen monitors, electric car batteries, wind turbines, missiles and aerospace alloys.
However, mining the elements is difficult, costly and polluting.
China now supplies more than 90 percent of the world's rare earth demand, even though its reserves only account for about one-third of the world's total.
Over the past decades, the export prices for China's rare earths were comparatively low due to a lack of environmental protection costs.
In the late 1990s, as Chinese mines started to compete in the market, prices fell and most producers outside China closed. However, supplying most of the world's demand has left China with many problems, including serious environmental pollution and sharply reduced reserves after decades of exploration.
To protect the non-renewable resources and control environmental damage, the Chinese government announced a series of measures that include cuts in export quotas, crackdowns on illegal mining and mineral smuggling, a halt to new mining licenses and the introduction of production caps.
Since the beginning of this year, the average price of the 17 rare earth elements have doubled in China from the end of 2010. Analysts have accused speculators of targeting rare earth for huge returns and pushing prices beyond the supply and demand fundamentals of the market.
However, Xing Bin, the executive deputy general manager and chief financial officer of the Inner Mongolia Baotou Steel Rare Earth (Group) Hi-Tech Co., considers the current price increase as a revaluation process that would bring the price back to a reasonable level.
"The price increase will not endure and the prices will stabilize again when it strikes a balance between the demands of suppliers and consumers," Xing said.
China's latest move, a new resource tax on rare earths beginning in April, would further fuel the price rises, analysts said.
The tax rate was set at 60 yuan (about 9.15 U.S. dollars) per tonne of mined light rare earths, while the rate for medium and heavy rare earths was set at 30 yuan per tonne. Rare earths were previously taxed under the category of ordinary non-ferrous metals, with tax rates between 0.5 and 3 yuan per tonne.
Yang Wanxi, the director of a rare earth expert panel under the Baotou Municipal Committee of Sciences, said that rare earth prices have shot up exponentially in recent months because of many reasons, adding that China's new resource tax would add fuel to the price rises.
"In a word, the era of cheap rare earth supplies might have come to an end," Yang said.
He suggested that the revenue from the new levy should be used to fund research and development on rare earth processing and application technologies, set up environmental compensation funds and build rare earth reserves.
Xing said that the tax would increase the cost for rare earth firms and lead to higher prices when the costs are passed to consumers.
Zhang Zhong, the general manager of the Inner Mongolia Baotou Steel Rare Earth (Group) Hi-Tech Co., told Xinhua that the tax would increase the company's production costs by about 720 million yuan this year.
The resource tax came after the announcement in January of tougher emission limits for rare earth mining and smelting. The emission caps on about 15 pollutants, announced by the Ministry of Environmental Protection, will take effect on October 1 this year.
In addition to the new tax, the emission caps would also add companies' operation costs. Further, it is widely expected that the national reserve policy would come out soon and would push up rare earth prices, said Yang Baofeng, an analyst with the Shanghai-based Orient Securities.
Inner Mongolia will accelerate the construction of a rare earth strategic reserve base and will establish a national rare earth reserve to pave the way for a potential rare earth trading platform, Hu'ercha, the deputy director of the Standing Committee of the People's Congress of Inner Mongolia Autonomous Region, said early last month.
The Ministry of Land and Resources (MLR) announced in January the establishment of eleven state-managed rare earth mining zones in Ganzhou in east China's Jiangxi Province. The sites are rich in ion-absorbed-type rare earths.
The MLR also said that the country would cap this year' s rare earth output at 93,800 tonnes from 89,200 tonnes last year and would not grant new licenses for rare earths prospecting and mining before June 30, 2012.