Fate of global rare earth miners rests on China smuggling crackdown – by David Stanway (Reuters U.S. – July 7, 2015)


BEIJING – The fate of debt-ridden U.S. rare earth miner Molycorp rests on China’s efforts to crack down on networks that smuggled as much as 40,000 tonnes of the vital technology metals out of the country last year, driving down global prices.

Greenwood, Colorado-based Molycorp is the sole U.S. domestic supplier of rare earths used in everything from smartphones to military jet engines and hybrid vehicles. In 2011, it relaunched its huge Mountain Pass mine in California expecting prices to stay high after China, which dominates world supply, restricted exports. Last month it filed for bankruptcy protection as operating losses mounted.

Customs police in the eastern Chinese port of Qingdao last month arrested five traders following a nine-month investigation into a rare earth and ferromolybdenum smuggling ring worth nearly $18 million.

That was no one-off. Chinese authorities have been struggling since 2010 to smash an illegal supply chain in which rogue miners deliver ores to unauthorized separation facilities, with the finished products then disguised and shipped abroad.

“Traders go through all kinds of channels and make false product declarations at customs – marking it as alumina or even washing powder,” said Chen Zhanheng, vice-secretary general of the Association of China Rare Earth Industry.

According to industry estimates, around 40,000 tonnes of rare earth oxides were smuggled out of China last year, more than the official export volume of 28,000 tonnes. It has hurt overseas producers like Australia’s Lynas Corp and Molycorp, whose business plans were built on China’s efforts to restrict domestic supply and crack down on illegal production.

“Paradoxically, Molycorp’s biggest supporters may be in Beijing,” said David Abraham, director of the U.S.-based Technology, Rare and Electronics Material Center, who studies the politics behind the rare earth sector. “If authorities in China can reduce black market trade it would introduce enough market stability and an unofficial price floor that will go far in giving Molycorp the space it needs to restructure into a profitable company.”

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