'OPEC' for rare earths could cure price pains

• Source: Global Times
• [00:47 September 09 2009]
• Comments

The forthcoming development plan is also in line with China's national situation.

The roadmap states clearly that a rare earth industrial pattern led by several large enterprise groups is to be established gradually through restructuring and mergers to increase industrial concentration and to take the road of intensive development.

By 2015, the number of rare earths smelting and separating corporations will have been reduced from nearly 100 to about 20.

However, it will take more than this to win control over the pricing of rare earths.

China's weakness here is largely due to the absence of an "OPEC" equivalent. The open production and supply account mainly for the declining price.

In 2005, China's rare earth production reached as high as 96 percent of the world's total, with exports at over 60 percent.

Nevertheless, the pricing power of rare earths did not lie in the hands of Chinese enterprises.

Compared to 1998, China's export volume of rare earths increased 10 fold, yet the price dropped by 36 percent.

An "OPEC" of rare earths means an international organization led by China similar to the one established by such major oil-producing countries like Iraq, Iran, Kuwait, Saudi Arabia and Venezuela in 1960 to jointly deal with Western oil companies and maintain oil income during the following 40 years.

Such an organization would enable China both to possess pricing power and to make its voice heard.

Indeed, besides a Chinese version of rare earth "OPEC", we should also include the world's rare metals like gallium, indium, rhenium, niobium, hafnium and so on into the national reserve system.

What's more, we should follow the lead of such countries like Japan and the United States in having some rare metal mines fallow for long periods, instead buying abroad to protect the country's rare resources.

The author is a tax official in Hebei Province