Prices of some rare earth metals have doubled in just three weeks amid heavy stockpiling in China that has raised fears over global supplies.
China produces more than 90 per cent of the world’s rare earths, 17 elements used in hybrid cars, fluorescent lights and many high-tech applications.
A recent crackdown by Beijing on rare earth mines and restrictions on exports have caused chaos in some of these markets.
Japan and the US, the world’s biggest importers of rare earths, have repeatedly voiced concerns to China, while complaints from industrial users of rare earths have been growing. Last year, China cut their exports by 40 per cent and temporarily banned exports to Japan during a political dispute.
Rare earth prices have already been rising sharply this year, but the recent sharp price increase has puzzled Chinese analysts, who blamed it largely on hoarding by companies who expect prices to rise further.
Heavy rare earths have been the most affected. The price for terbium oxide, used in hybrid cars and sonar systems, has risen to Rmb20,000 ($3,000) a kilo from Rmb8,750 less than three weeks ago.
One European trader said: “It’s a bubble, it’s got to be, there is no end use that can stand that price,” of rare earths.
In recent testimony to Congress, General Electric, which uses rare earths for train engines, wind turbines and CAT scan equipment, urged Washington to ensure domestic supplies of rare earths in the US.
Some observers believe the US and EU may bring a case against China’s rare earth policies to the World Trade Organisation, which is reviewing Chinese export restrictions on other raw materials.
Chinese officials said environmental concerns were the main driver behind a restructuring on the industry, which will close illegal mines and reduce output and ultimately put such state-owned miners as Minmetals, Chinalco and Baotou at the helm of the rare earth sector.
China began a stockpiling programme in 2010 that could eventually store up to 200,000 tonnes of rare earths, nearly twice the country’s annual production, analysts said.
Traders said that in recent weeks “hot money” and speculation had driven up prices of rare earths inside China, while transaction volumes have fallen.
Yin Jianhua, analyst at state-owned consultancy Antaike, said China’s biggest producer of rare earths had sold only 1,000 tonnes of rare earth oxides in the first quarter of this year, compared with an annual output of more than 50,000 tonnes.
Beijing’s controls spurred global miners to accelerate rare earth production outside China and some analysts think the industry could be oversupplied in a few years time as a result.
China gained a monopoly decades ago as lax environmental standards made it very cheap to mine rare earths there.