China cuts rare earth export quotas, U.S. concerned

China produces about 97 percent of rare earth elements, used worldwide in high-technology, clean energy and other products that exploit their special properties for magnetism, luminescence and strength.

The rare earth issue may further strain relations between China and the United States, which have been battered this year by arguments over everything from Tibet and Taiwan to the value of the Chinese currency. Chinese President Hu Jintao is due to visit the United States next month.

China's Commerce Ministry allotted 14,446 tonnes of quotas to 31 companies, which was 11.4 percent less than the 16,304 tonnes it allocated to 22 companies in the first half of 2010 quotas a year ago.

China slashed the export quota by 40 percent in 2010. The export restraints on rare earths has inflamed trade ties with the United States, European Union and Japan in particular.

In Washington, the U.S. Trade Representative's office expressed concern over the latest announcement.

"We are very concerned about China's export restraints on rare earth materials. We have raised our concerns with China and we are continuing to work closely on the issue with stakeholders," a USTR spokeswoman said.

Last week, the trade representative's office said China had refused U.S. requests to end export restraints on rare earths, and that the United States could complain to the World Trade Organization, which judges international trade disputes.

MOLYCORP SHARES RISE

After China's announcement, shares of Molycorp Inc, the Greenwood, Colorado-based company that owns a rare earth mine in California, were up 10.5 percent to $54.69 in early trading.

Wind turbines and hybrid cars are among the biggest users of rare earth minerals, which analysts say are facing a global supply crunch as demand swells.

This little-known class of 17 related elements is also used for a vast array of electronic devices ranging from Apple's iPhone to flat screen TVs, all of which are competing for the 120,000 tonnes of annual global supply.

In a short statement on its website (www.mofcom.gov.cn), the Chinese Commerce Ministry said it had added more producer companies to the quota list, but cut volumes allocated to trading companies.

Japan has been hard hit by the export curbs. Japanese imports of rare earths shrank further in November, reflecting the impact from China's de-facto ban on shipments of the minerals that was lifted late last month.

Japanese companies had complained about restrictions on shipments of the metals by Chinese customs officials following a spat over disputed islands in the East China Sea, which led to the de-facto suspension by Beijing on exports from late September.

The European Union has also expressed concern over China's limiting of rare earths' exports, though the bloc's trade commissioner said earlier this month that China had reiterated that rare earth supplies would be sustained.

China says its curbs are for environmental reasons and to guarantee supplies to domestic industrial consumers. But it has also insisted its dominance as a producer should give it more control over global prices.

Beijing has been trying hard to impose discipline on its chaotic rare earth sector and is expected to establish a rare earth industry association by May next year, said Wang Caifeng, an official with the Ministry of Industry and Information Technology, speaking at a conference on Tuesday.

Wang said he hoped the body would perform the same function as the China Iron and Steel Association by ensuring the "orderly development" of the sector through pricing and export quotas.

Tougher environmental regulations for the rare earth sector are also expected to be unveiled next year, the China Business News reported on Tuesday.

(Reporting by Niu Shuping, David Stanway and Michael Martina in Beijing; and Roberta Rampton in Washington; Editing by Anshuman Daga, Vicki Allen and Will Dunham)