China tightens controls on rare-earths production

BEIJING - China's government has further tightened curbs on production of rare earths used in mobile phones and other high-tech products in a move that might inflame trade tensions with Washington and Europe.

Closer to home, this strategy prompted Molycorp to reopen and overhaul its open-pit rare earth mine in Mountain Pass, Calif., about 15 miles south of Primm, in 2010. Several hundred people work at the mine, many of whom commute from Las Vegas.

Regulations issued this week in China require mines and smelters to meet minimum output levels to continue operating. The state newspaper China Daily said Wednesday that might result in shutdown of 20 percent of the country's production capacity.

China has about 30 percent of the world's rare earths deposits but accounts for more than 90 percent of production. It alarmed foreign manufacturers by imposing export curbs in 2009 while it tries to build up a domestic processing industry to capture more of the profits that now go to U.S., Japanese and European companies.

According to estimates published by Molycorp, Chinese production peaked in 2008 and will not return to that level for another two years. At the same time, the demand for rare earths will continue to outpace production. Rare earths are 17 minerals used in making things such as hybrid cars, weapons, flat-screen TVs, mobile phones, mercury-vapor lights and camera lenses. Molycorp, in particular, expects windmill and electric or hybrid car manufacturing to propel rare earth demand.

At the Molycorp annual meeting in May, CEO Mark Smith predicted the industry would face a Chinese government-led "forced consolidation."

"These trends highlight the need for a greater diversity of global rare earth supply, which is what Molycorp is on track to accomplish," Molycorp spokesman Jim Sims said in a statement.

However, Molycorp's stock plunged last week after it reported a second-quarter loss in the wake of falling rare earth prices as the world economy slowed.

As news of the latest Chinese moves were reported, Molycorp stock surged 9.3 percent in the first hour of trading on Wednesday before losing some ground later in the day to close up 33 cents, or 2.7 percent, at $12.52 on the New York Stock Exchange. Shares rose again in after-hours trading.

Chinese officials have expressed hope that foreign companies using rare earths will shift production to China and share technology with local partners.

The United States, the European Union and Japan filed a World Trade Organization complaint in March accusing China of violating its free-trade commitments. Chinese officials have defended the controls as in line with WTO rules and necessary to protect the environment.

Las Vegas Review-Journal writer Tim O'Reiley contributed to this report.