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China Ramping Up Rare Earths Output to Highest Level in 5 Years

BEIJING (TheStreet) -- China's mining companies were told Thursday to boost their combined output of rare earths to the highest level in five years.

The government order to increase production 13% from last year's level is likely to hold down near-term prices for the hard-to-find metals used in all sorts of high-tech gear, from lasers to hybrid cars.

But the latest annual rare earths quota affecting state-owned mining companies such as China MinmetalsBaotou Steel Rare Earth and Aluminum Corp. of China (ACH) has put more pressure on their global competitors such as America's Molycorp (MCP) and Australia's Lynas (LYSCF).

China's mines churn out most of the world's 17 types of rare earth metals. Estimates of the country's global market share in recent years have ranged from 60% to 90%. This dominance sparked a dispute with other countries over quotas and export limits imposed by Beijing in 2010. The row ended with a World Trade Organization ruling in March against China.

Most of these metals with quirky names such as ytterbium and europium are sold to China-based manufacturers, including multinationals. But exports are apparently increasing. The industry data provider Chinese Rare Earth Information Net reported a 19% year-on-year jump in rare earth export licenses to about 800 awarded to Shanghai companies between January and May.

On Thursday, the Ministry of Land and Resources set the 2014 nationwide rare earths quota at 105,000 metric tons, up from 93,800 last year. The ministry also set breakout quotas for individual provinces. Also, it announced mine output quotas for other limited-use metals such as tungsten and antimony.

Citing concerns over environmental damage, illegal exports and mining sector overcapacity, the government slashed the national rare earth quota in 2012 to 46,900 metric tons from 93,000 the year before and 89,000 in 2010. It also cut export quotas, sparking expansions at Molycorp and Lynas but rattling buyers of rare earths worldwide.

To further control the industry, since 2012 the government has been forcing small mines to close or consolidate with major players. Baotou, for example, said in January it had taken control of nine smaller companies. Shuttered companies and laid-off workers have been eligible for government financial support. A moratorium on new rare earth mines was ordered until at least June 2015.

China's biggest miners have thus gotten bigger. The largest, Shanghai-listed Baotou, has huge reserves of rare earths and can process about 54,000 metric tons annually. It's also reportedly storing about 80,000 metric tons.

The securities analyst Guangzheng Hang Seng said in a recent analysis that it likes Chinese rare earth mining stocks due to rising demand for electric-vehicle batteries, wind turbines and magnets implanted in "smart" home appliances.

Nevertheless, investors were apparently not impressed by the government's latest quota announcement. Baotou shares fell 1.5% to close at 18.92 yuan Thursday, for example, and China National Nonferrous Metals declined 2% to end the day at 9.26 yuan on the Shenzhen exchange. Rare earth mining stocks on Chinese exchanges have been sliding since early September on news of falling global prices.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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