Double threat to Europe's rare earth supply -MMTA-INTERVIEW

Trade the News

Sunday February 27, 2011 08:25:16 AM GMT

* Short-term supply of rare earths critical

* Stock-piling an option, not best solution

* EU legislation is punitive

By Sue Thomas

LNODON, Feb 25 (Reuters) - Europe's supply of rare earth elements and minor metals is being squeezed by China's grip on these vital resources as well as by stringent EU legislation, a main member of the Minor Metals Trade Association said.

China produces about 97 percent of the global supply of the minerals used in smartphones, electric car motors and high-tech industrial equipment. It cut export quotas by 40 percent last year, alarming buyers and angering trading partners.

Last week it announced a shake-up of its rare earths industry, vowing what it termed as "reasonable" quotas on mining and exports to bring order to the sector, protect the environment, prevent illegal mining and conserve its own resources.

Charles Swindon, chairman of the trade and lobby committee of the MMTA, the world's largest association involved with minor metals, is not convinced that China will soften its stance and says that Western countries now face a crunch.

"The situation in the short term is very critical," he told Reuters in an interview.

"I think that there is no change in China's attitude," he added. "I would say they are hardline, and we will have to wait and see if economic factors alone might change this policy, but I somehow doubt it."

China's exports of rare earth elements fell by almost one-tenth last year, but the overall value rocketed as the quota cuts lifted international prices.

ANGER

The export restraints have angered major trading partners including the United States, European Union and Japan. The U.S. Trade Representative office threatened last month to take China to the World Trade Organisation.

In a strategy document last month, the European Commission said it would confront any country that restricted supplies of raw materials and hinted at stockpiling.

Swindon said while stockpiling strategic metals was an option, it was not the best long-term solution. A two-pronged approach of recycling and diplomacy was the way forward, he said.

"I think recycling would take a much great burden from the need to import so much from the east," he said.

"And I think some of the initiatives being taken up at the EU in terms of having a common policy for dealing with this would bring greater economic benefit, and it will be far cheaper."

But at the same time, EU chemical regulations -- registration, evaluation, authorisation and restriction of chemicals (REACH) -- are tightening the screws on the already squeezed market.

Under the legislation, companies that aim to trade titanium must pay import duties of 5 percent to bring the material out of bonded warehouses and are also required to buy a letter of access for 70,000 pounds each time, Anthony Lipman, also a former MMTA chairman, told a UK House of Commons committee last week.

"I certainly believe the REACH legislation is having a punitive effect in the UK and Europe," Swindon said.

"There is a risk people will no longer be able to participate in the free trade and supply of these metals to manufacturing companies. I think the effects of this are only starting to hit, and it is a worry."

(Editing by Jane Baird)

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