Hang in there Molycorp..
On Friday it was announced that Inner Mongolia Baotou Steel Rare Earth Group (SHA:600111), China’s largest rare earth producer, has acquired nine rare-earth mining companies, under the auspices of a government plan to consolidate the industry through state-owned giants buying up smaller producers. The same thing is happening in the coal and aluminum sectors.
According to The Wall Street Journal, the consolidation is China’s way of dealing with unlicensed rare-earth miners and processors that pollute the countryside, and traders, who regularly smuggle rare earths out of the country and dump the materials onto the world market, thus adding to supply and depressing prices.
The move makes sense because with China up to now failing to control smuggling of rare earths, Chinese producers aren’t able to take advantage of higher prices that would likely accrue if the smuggling problem was greatly reduced or eliminated.
In a further development, China announced on Friday that Beijing will set up a group to coordinate rare-earth production quotas, mining permits and other related policies. The group members will include Baotou, China Minmetals Corp, Aluminum Corp. of China (NYSE:ACH), Ganzhou Rare Earth Group Co., Guangdong Rising Nonferrous Metal Co. and Xiamen Tungsten Co. (SHA:600549) Together, these companies account for about 85 percent of China’s rare-earths production.
The Obama administration case against China's handling of exports of rare earth minerals is not just because of business concerns, it is a national security concern, as well. China's dominant position in the production of rare earth minerals has long-reaching implications for the U.S. Department of Defense. As our Laurie Ure reported back in 2010, there is widespread use of rare earth materials in defense systems, including precision-guided munitions, lasers, communication systems, radar systems, avionics, night vision equipment, satellites and more.
A coating of yttrium, which can withstand high levels of heat, is used inside jet exhaust systems. Samarium, which is resistant to radiation, is used in magnets inside missiles and other weapons.