A week ago we published an article on Mineweb which on the face of things may have suggested that China had very substantially increased its export quotas for rare earths for 2011 in response to WTO pressures. We are grateful to Jim Sims, VP Corporate Communications for Molycorp for pointing out that all may not quite be as it seemed and the new Chinese quotas are not directly comparable with the old ones. In fact, the new quotas will still effectively remain very substantially below the country's 2010 levels, which themselves were well short of global market needs.

Sims' comments are as follows: "China's 2011 quotas of 30,184 tonnes include, for the first time, exports of alloys where rare earths comprise at least 10%. This will have the effect, according to independent RE market analyst Dudley Kingsnorth, of IMCOA, of reducing the effective export of rare earths from China to between 20,000 and 22,000 tonnes for 2011. Compared to 2010's export quota of 30,258, this represents a year on year drop of greater than 25%"

Put in the context of global supplies of these critical materials, Sims also pointed out that what is perhaps the single most important facet of China's 2011 rare earth quotas is how this effective export quota of between 20,000 - 22,000 tonnes compares to a global demand outside of China of between 55,000 - 60,000 tonnes. Given that China currently supplies the rest of the world with an estimated 97% of all rare earths, this disparity in supply and demand forecasts extraordinarily tight markets for 2011 ... and very likely, severe shortages of some of these critical materials.

What China has been doing in its controls, which it says are to protect its own industry supplies of these increasingly vital elements for its own high tech industrial sector, is also to persuade other countries to move some of their manufacturing facilities into China itself where supplies of rare earths are less restricted - something which some Japanese rare earths consumers in particular are already doing.

Although there is considerable activity in the rare earths exploration and development sector it will take some years for any new developments to meet full Western and Japanese requirements - not so much because the rare earths elements are that rare, but because the processing technology is highly complex, costly to develop from scratch and thus lead times are high and capital to build plants may not be readily available. There are also environmental concerns. Recycling, which could help meet some supply needs, is also is not at an advanced stage

In particular some of the heavier rare earths elements (REEs), which are vital in some manufacturing areas are in very short supply indeed and prices are rising by the day. They tend to make up a very small part of the rare earths complex and there is the danger for rare earths developers that, as new projects come on stream, the market for the lighter rare earths may become saturated, while the heavy REEs may continue to be in substantial deficit without significant Chinese supplies.