May 27, 2011

Chinese Company Cleared for Limited Rare Earth Trading

Country’s largest rare earth producer will open rare earth exchange in Inner Mongolia

Baotou Steel Rare Earth (Group) Hi Tech, which is China's largest producer of rare earths, has obtained government approval from the region of Inner Mongolia to open a rare earth exchange, according to a state media report on Friday.

Reuters reported that the company, listed in Shanghai and with its mining and processing operations based in Inner Mongolia, will run the exchange together with Inner Mongolia Hi-Tech Holding Co. It cited a Xinhua news agency report that said that the regional government had given the "green light to the establishment of a rare earth exchange in the city of Baotou," giving as its sources city officials and an earlier statement from Baotou Steel Rare Earth (Group) Hi Tech. Xinhua did not say when the bourse would begin operations or whether the central government had also approved the exchange.

China controls approximately 97% of rare earth production and recently slashed both production and export, citing environmental concerns that drive a need to change its production and processes and also concerns over illegal exports. Its tight control over the rare earth supply available to other nations for, among other products, high-tech goods, has worried its customers, who have had to deal with a 62% reduction in available supplies while China tightens the spigot.

According to the report, the decision is a "breakthrough" in the move by companies in China to create a single national exchange to "regularize market flows of rare earths" and, not coincidentally, add to their leverage over foreign buyers. However, it suggested that the exchange would be limited to somewhat restricted trading in at least some of the 17 elements classified as rare earths.

One of those limitations is futures; Xinhua said, "The government required that the exchange should not deal in futures trading. Sources close to the matter say the exchange can only deal with spot transactions of rare earth." Still, the exchange will no doubt assist China to "play its influence over rare earth pricing on the global market."

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