How The H1-2011 Rare-Earth Export Quotas Were Allocated

On December 28, 2010 the Chinese Ministry of Commerce announced the allocation of rare-earth export quotas to individual companies operating in China, for the first half of 2011. Including a provisional allocation of a small export quota likely to be awarded in March 2011, the total allocation for H1-2011 is 14,508 t of rare-earth materials. As previously mentioned at TMR, there was some initial confusion in the subsequent press reports on the numbers associated with the announcement – or more specifically comparisons with H1-2011 figures.

The individual allocations of quotas are listed in the table below, divided into lists for Chinese- and foreign-owned companies. The two lists are sorted from highest-to-lowest allocation. It can be seen that the rare-earth enterprises operated by Rhodia (Baotou Rhodia Rare Earth Company and Liyang Rhodia Rare Earth New Materials Company) and Neo Material Technologies (Zibo Jiahua Advanced Material Resources Company and Jiangyin Jiahua Advanced Material Resources Company) received between them the majority of quota allocations for foreign-owned companies, operating in China.

The original announcement was published on the Ministry’s Web site, in the Chinese language (naturally). Associated English language versions, picked up and reported on by the mainstream media, neglected to include some interesting details on how the allocations were made to the individual companies.

* The quota allocated to Pingyuan Sanxie Rare Earth Smelting Company is provisional, and will only be allocated once its infrastructure improvements have been inspected and approved by a local regulatory agency in March 2011.

The detailed breakdown of quota allocations published by the Ministry includes a formula that was apparently used to allocate quotas to individual companies. In a nutshell, this formula takes the overall export quota value of 14,508 t and divides it between the various companies on the basis of three factors, each with their own specific weighting:

• The tonnage of rare-earth materials exported by each company in the prior three years, as a proportion of the total exports in that period (X) ;
• The value of rare-earth materials exported by each company in the prior three years, as a proportion of the total value (Y);
• The tonnage of rare-earth materials exported by each company in 2009, as a proportion of the total exports in that year (Z);

The heaviest weighting was given to the first factor above. The specific formula published was as follows:

Individual H1-2011 quota = (total quota) * ((0.85 * (A1 + A2)) + (0.15 * A3))

where A1 = 0.9 * X, A2 = 0.1 * Y and A3 = Z

This is a similar formula to that used in at least the last few years, although the weightings applied to each factor have changed over time.

If we do a little further mathematics here, we can see that

Individual H1-2011 quota = (total quota) * ((0.77 * X) + (0.09 * Y) + (0.15 * Z))

We can compare the weightings applied to each factor for H1-2011, with those used by the Ministry for H1-2010, which equated to

Individual H1-2010 quota = (total quota) * ((0.70 * X) + (0.08 * Y) + (0.22 * Z))

with Z in this case referring to tonnage shipped in 2008.

We should note that the allocations are dominated by the previous shipments made by specific companies, which in years prior to 2010, did not always match the quota allocated. The formula was thus designed to partially re-allocate future quotas to companies that were making good use of them in prior periods. 2010 presents an obvious hiccup in this approach, given the likelihood that most if not all companies will have met or even exceeded the quotas allocated to them.

Still, the formula used remains largely the same as in prior years, albeit with slight adjustments to the factor weightings.

(A big “thank you” to my friend and former colleague Chun Li, for his assistance in interpreting parts of the Chinese Ministry of Commerce’s Web site).