Commodities & Metals

Confusion Reigns as China Raises Export Quotas on Rare Earths (MCP, AVL, REE, SHZ, REMX)

China’s Ministry of Commerce has released a statement saying that the government has raised export quotas for rare earth elements to over 30,000 metric tons for 2011, virtually identical with shipments of the minerals in 2010. The move follows a ruling less than two weeks ago from the World Trade Organization that China’s limits on rare earth shipments violated global trade rules.

US rare earth miners Molycorp, Inc. (NYSE: MCP), Avalon Rare Metals, Inc. (AMEX: AVL), and Rare Element Resources Ltd. (AMEX: REE) are not yet in production, so the impact of China’s decision should be negligible as far as today’s revenues are concerned. China Shen Zhou Mining & Resources, Inc. (AMEX: SHZ) also produces some rare earth minerals from its mines in China.

Prices for the rare earths have been skyrocketing since the beginning of the year following the imposition of tighter Chinese quotas. The Chinese produce about 97% of the world’s supply of rare earth minerals, which are important in the manufacturing of a variety of high-tech, alternative energy, and defense products. Recent composite prices for eight of the seventeen rare earths mined in Australia rose to $223.16/kilogram, or about $223,000/metric ton, according to Bloomberg.

As with many things involving China, it’s not crystal clear that the entire increase in exports will be in shipments of rare earths. The ministry has apparently added ferrous alloys that include rare earths in their list of export increases. This might mean that less of the raw minerals will be shipped than the headline number indicates.

The Chinese are probably hoping that raising the quota will put an end to the dispute of rare earths exports. Chinese producers will continue to have a virtual monopoly on rare earths production until the end of 2012, and maybe beyond.

Shares of Molycorp are trading down about -1% today, at $53.78, within a 52-week range of $12.10-$79.16. Avalon’s shares are down about -0.3%, at $6.56, within a 52-week range of $2.16-$10.11. Rare Element’s shares are up more than 1%, to $10.38, in a 52-week range of $2.08-$17.92. China Shen Zhou’s shares are down about -0.6%, at $3.10, in a 52-week range of $0.60-$10.84. The Market Vectors Rare Earth/Strategic Metals ETF (NYSE: REMX) is up about 0.2%, at $24.95, within a 52-week range of $19.25-$28.91.

Paul Ausick