The However, WTO rejected these line of reasoningChina, in particular, has failed to prove that the measures adopted were actually conducive to the alleged objectives. Rather, it came to the conclusion that export restrictions protected domestic production of rare earths and boosted their consumption to produce higher value products in their own country. China still consumes around 70% of world production. After Beijing failed last August with an appeal, At the beginning of the year, the government joined the verdict and abolished export quotas by January; the tariffs should fall according to a speaker of the authorities only in May.

It is worth noting how the world market has responded to this so far: virtually nothing. The price of rare earths, measured by Bloomberg's price index, remained more or less stable in January, with a slight downward trend (see chart). This is in stark contrast to the reaction of the market a few years ago. 2010 had imposed a temporary export ban on China to China and 2011 lowered its export quotas worldwide. As a result, prices exploded. Western industrialized countries panicked as they were heavily dependent on imports from China. After all, the 17 rare earth elements are indispensable for the manufacture of a wide range of high-tech products, whether mobile phones, flat screens or laptops, wind turbines, hybrid cars or modern weapon systems.

The fact that it remained so calm after the Chinese intervention has something to do with the fact that the usual market forces have already done a great job in recent years. The higher prices due to Chinese export restrictions, but also an expected increase in demand had called mining companies in the US (Molycorp) and Australia (Lynas) on the scene and lured into production.

Stock prices in the basement

Meanwhile, the chemical company Rhodia in La Rochelle, France, made its first large-scale recycling of batteries for the recovery of rare earths. China's share of world production fell from around 98% in 2010 to currently below 90%.

The customers' concern for sufficient supplies had another side effect, namely innovation, which allowed the consumption of rare earths in certain products to be reduced or even substituted. Meanwhile, in China, export quotas barely hampered illegal production and smuggling - contrary to Beijing's communicated intentions. Experts appreciatethat 2011 has been satisfied with around 30% -50% of world demand for smuggled goods from China.

All in all, the actual - and perceived - supply gaps closed relatively quickly, and also decreased demand; China did not even exhaust its export quotas last year - it had just about exported 28 000 t last year, while the quota would have been above 30 000 t. Little wonder, their abolition had little consequences. The price had dropped so low in the course of these developments since the record high in the year 2011, however, that there was already speculation about an imminent bankruptcy of the American company Molycorp; If 2011's stock was still worth over 74 $, it will trade for just over 70 cents today. The price collapse of rare earths has also sent the shares of the Australian company Lynas deep into the basement - from about austr. $ 2.50 in the year 2011 on currently austr. $ 0.045.

The fact that the abolition of export quotas had no impact on the world market price is hardly surprising given these developments. By contrast, analysts do not rule out that price pressure will increase further if, as announced, China abolishes export duties in May as well.

Serious environmental problems

By the way, the WTO could not have contradicted China in one point: the extraction of ore and the subsequent extraction of rare earths pose serious risks for humans and the environment. That was one of the reasons why China had been able to build a quasi-monopoly position; It can not only produce cheaper than other countries because it makes the job cheaper, but also because its environmental regulations are less stringent than elsewhere. Even Molycorp continues to process part of its US-funded ore in China. Meanwhile, Lynas has outsourced the refining to Malaysia.

At the same time, the WTO recognizes that China has recently substantially increased its efforts in this area. If the Chinese government is serious and uses its energy in the future instead of exports on environmental controls and the fight against illegal production and smuggling, this should in turn support world market prices - because for the time being, the rest of the world is not around rare earths from China.

Source: http://www.nzz.ch/finanzen/eine-erstaunliche-wende-1.18477846