Chinas export restrictions for rare earth minerals hit auto industry

As early as last week, China announced that it would reduce its exports of rare earth minerals to the United States and Europe, shortly after they had been reduced to Japan on the basis of rising political tensions about islands in the East China Sea.

The decision of the Chinese leadership hits the principal buyer countries of rare earth minerals hard. About 90 per cent of the rare earth minerals, which are used in the construction of nearly all important electronic appliances, amongst them neodymium and scandium, are being mined in China. These metals are used in mobile phones, computers, wind turbines, missile systems, electric batteries and many other technical products. On this basis the country has the ability to apply pressure and can hold its trading partners Japan and in the West at bay. The Chinese leadership had been irritated by the activities of the US Congress, which were meant to deteriorate the import conditions for Chinese products into the US.

At the moment only few containers with the precious freight arrive in Europe or the United States. This is due to the fact that Chinese exporters of rare earth minerals were ordered by the government to have their exports to the West depart only on certain days and in limited quantities. As the official newspaper China Daily reported last week, the current restrictions would lead to an export reduction of about 30 percent in the coming year. The report was promptly negated by Chinese government officials who stated that decisions about potential export restrictions and their extent had not been made so far.

Market observers believe that China is ready to use its growing economic muscles in regard to its most important trading partners. Not only the announcement of a potential implementation of protectionist measures in the US, but also the development of the internationally waged currency war, prompted China to react accordingly to the foreign threat. As the president of the German Automobile Association, Matthias Wissmann told AFP yesterday, the German automobile industry is already feeling the consequences of China’s export restrictions on important commodities. The producers were very concerned about the future price development in the rare earth minerals sector, which would be indispensible for the automobile industry, since the metals are urgently needed for the construction of electronic batteries.

Wissmann stated that the competitiveness of the German automobile industry was at stake because of the Chinese export restrictions. Various company representatives pointed out that the industry should already start to look for alternative suppliers of rare earth minerals. Australia and Vietnam could be considered as secondary producing countries of the metals. The German industry should not be the victim of geopolitical tensions and should not risk its future standing due to politically motivated trade wars.

Roman Baudzus

Goldmoney.com

All data and quotes sourced from Reuters.

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Written by Gillian Campbell

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