China blames market, not politics, for lower RE exports

The fall in China's rare earth exports to the US this year has been driven by market factors, China's commerce ministry (Mofcom) said, denying suggestions that political tensions are to blame.

"Chinese [rare earths] companies deal with international trade according to changes in global demand and market risks. The Covid-19 pandemic has affected production and operating activities at rare earths firms this year," Mofcom said at a regular briefing this week.

China's rare earth exports fell by 20.2pc from a year earlier to 22,800t in January-July 2020, with revenues down by 26pc to $211mn over the same period, Mofcom said, quoting latest customs data. Shipments of rare earth compounds to the US fell by 36pc to 5,084t in January-June from 7,901t a year earlier, according to the most recent data on exports by destination.

Rare earths exports in July fell by 69pc from a year earlier to 1,620t, the lowest level since February 2015. Weaker international demand because of the Covid-19 pandemic was behind the fall, Chinese market participants said.

The Covid-19 pandemic has slowed global economic growth and manufacturing activity, particularly in Europe and the US. Buyers of Chinese rare earth exports have cut operating rates and kept rare earths feedstock inventories low because of uncertainty created by the coronavirus crisis.

US-China tensions

But some industry participants have suggested that the fall in China's rare earth exports could be a retaliatory measure against the US.

Relations between Beijing and Washington have worsened, after the US administration last month closed China's Houston consulate and removed Hong Kong's preferential trade status. The US has also rejected China's offshore oil and gas claims in the South China Sea, adding to tensions.

US President Donald Trump early this month signed an executive order banning any US transactions with the Chinese technology firm that owns mobile application TikTok, and issued a similar order against owner of messaging app WeChat.

Trump said this week that he had postponed scheduled talks to review the US-China trade agreement because of his anger over how China handled the Covid-19 outbreak. Asked if he would pull out of the trade deal, Trump said: "We'll see what happens."

China's commerce ministry said yesterday that the two nations have agreed to hold trade talks in the coming days, without providing details. US exports of crude oil and other commodities to China have picked up in recent months but are still well below levels required to meet China's purchase commitments under the deal.

Chinese president Xi Jinping visited a rare earths plant in Jiangxi in May 2019, a move seen by market participants as a sign that Beijing might use rare earths to pressure Washington in its trade war with the US. The Beijing authorities and state-run People's Daily newspaper in the same month gave a strong hint that China might restrict exports of rare earths to the US as part of the trade war between the countries.

China accounts for more than 90pc of global supplies of rare earths, while 70-80pc of all US imports of rare earth oxides and metals come from the country.

The US has sought to find access to alternative rare earth resources to reduce its dependence on China's supplies. The US Department of Defense (DoD) in July signed contracts with Australian rare earth producer Lynas and US producer MP Materials to carry out design and engineering work for two US heavy rare earth separation plants.

Trump last year also signed documents freeing up funds under the US Defence Production Act to develop US capacity to separate and process heavy rare earths, light rare earths, the production of neodymium-iron-born NdFeB magnets, samarium-cobalt magnets and rare earth metals and alloys.