China raises rare earth production taxes

29 Mar 2011

Confirmation last week that China will raise taxes on rare earth production was rather overshadowed by the Japanese earthquake and Deutsche Telekom’s shedding of its US business.

From April 1, companies mining rare earths will be taxed at 60 yuan (€6.48) per ton for light rare earths, and 30 yuan per ton of medium and heavy rare earths. To put that into perspective, reports the current taxes to be 0.5 yuan and 3 yuan respectively.

One Chinese mining firm told the People’s Daily the changes will increase its cost of production by 720 million yuan, meaning the new tax will inevitably have an impact on global prices.

What’s interesting, though, is that the world isn’t panicking like it did when China announced last year that it would cut exports of the minerals, which are used in equipment including mobile phones and networks, precision instruments, hybrid cars and even missiles.

The reason for the global calm is simply that manufacturers rushed to secure alternative supplies when China announced the cuts. The country produces 97% of the world’s rare earths, and the planned reductions prompted a wave of deals – particularly from Japanese manufacturers who were heavily reliant on China.

Rare earth export value in China grew from $310.1 million in 2009 to $939.7 million in 2010, despite a 40% reduction in shipments overseas.

However, instead of now trying to drive the value of exports up still further, China looks to be acting to protect its citizens from the dirty business of extracting rare earths. The higher production tax will be used to research new processing and application technologies, establish a green compensation fund, and stockpile rare earths, People’s Daily revealed.

The move should also result in consolidation among rare earth mining firms in China, as smaller players are gradually driven out of the market by higher costs.

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