I’m in Shanghai at the CLSA China Forum 2010, and I just saw this story, ”Baotou Rare Earth Kicks off Reservation Plan,” on a locally produced web news site in English translation.
It basically states that China’s largest producer of rare earths, which is identified as Baotou Rare Earths, is going to build a stockpile of 300,000 tonnes of rare earth ore concentrates over the next three years.
The story denies that this is a government mandated but does say that Chinese “experts’ are divided among themselves on the value and the meaning of this move. Some think it reflects a government interest in building a strategic stockpile and others say it is to make sure that prices of the rare earths continue to be set by China even if foreign production should occur.
I want to contribute for my readers a third even more plausible explanation. I think that the rare earth mining industry in China is now facing a large environmental cleanup program; the Chinese government has decreed a halt to new mining projects including expansion of existing operations until 2015 or until environmental pollution due to a history of mining for volume without regard to environmental consequences has been “remediated.” This can take years and huge amounts of money. But, in any case, there is already too much dependence on this mining at many stages in the supply chain for components and finished goods, and simply stopping mining during the “clean up” and restructuring, which would be normal at some point, could well be an economic disaster for China.
I think that Baotou is building a large stockpile in anticipation of a supply interruption to be caused by the clean up and restructuring of the mining industry in general and the rare earth mining sector in particular.
I therefore repeat my admonition to those who are impeding the startup and restarting of the non-Chinese rare earth mining industry: hurry up, you’re running out of time. If Baotou reaches its goal of a 300,000 tonne reserve of ore concentrate by 2013 then the Chinese rare earth mining industry could shut down for as long as two years to give itself a window for remediation. This, of course, would mandate a cessation of exports of rare earths during that period in order to be able to provide for the demand of the domestic Chinese market.
I think that my theory of why Baotou wants to create a large stockpile of ore concentrates is the right one.