Suspension set to make rare earths even rarer

BEIJING - China's biggest producer of rare earths is set to impose a temporary suspension of production at its processing plants.

Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Co, the country's biggest producer of the valuable minerals by production, said on Tuesday that the move is aimed at warding off a plunge in prices and stabilizing the market.

The one-month production hiatus, which starts on Wednesday, has been implemented to comply with national guidelines intended to encourage a sustainable and healthy development of the industry against a backdrop of declining demand, the company said in a statement to the Shanghai Stock Exchange.

During the suspension period, the company will stop supplying raw materials to its smelting and separation plants and to partners of those companies, the statement said. The move comes on the heels of China Minmetals Corp's August call for an industry-wide suspension of production to guarantee stable operations in the sector after a sharp decline in prices since July.

"It's the right decision to absorb inventory overstock after a rapid decline in demand over recent months caused by skyrocketing prices, some having risen fourfold this year," said Liu Minda, an analyst at Huatai Securities Co Ltd. The surge in the price of raw materials, partly driven by market speculation, has eaten away at the profits of downstream producers in sectors such as automobiles and wind turbines, and has prevented the rare-earths industry from maintaining healthy and sustainable growth.

Figures compiled by Shanghai Metals Market, an information provider for nonferrous metals markets, show that the average prices of rare-earth oxides declined by more than 20 percent during the three months ending Oct 17.

"After a wave of speculation, the market is too weak now, and processing plants have to cut production to keep prices from falling," said Wei Chishan, a researcher at Shanghai Metals Market.

China, the world's biggest supplier of rare earths that are widely used in weapons, smartphones and wind turbines, set a production ceiling of 93,000 tons for this year.

However, figures from the Chinese Society of Rare Earths show that the country's annual output has surpassed an average of 100,000 tons since 2005.

That has seen the country launch series of policies to crack down on illegal exploration of the valuable metals to ease the growth in export quotas and drag the industry back onto the right track after poor regulation over many years.

The central government's total export quota for this year is 30,194 tons, slightly lower than 2010's 30,258 tons.