Tax changes 'will drive up rare earth prices'

Trucks collect and transport rare earth minerals at a mine in Sichuan province. Provided to China Daily

Changes may be in store for taxes on rare earths, a move that could push up the prices of these scarce minerals, an industry source said.

The anonymous source said that several ministries are discussing heavier taxes on rare earth producers, and an announcement on the changes will probably be made during the second half.

Taxes would be imposed based on the value of the minerals, rather than on volume as is the case at present. That shift will mean higher prices at the producer level, which the government hopes will reflect the scarcity of these resources and the environmental costs of their extraction.

Higher prices will alter the supply-demand balance, undercut the smuggling trade and reduce high inventories of rare earths overseas, said the expert.

Other steps will also be taken to better manage the rare earth industry, the source said. For example, environmental compliance certificates are likely to be required for exports.

The World Trade Organization in late March ruled that China had acted inconsistently with WTO rules with regard to export measures imposed on rare earths. Two years earlier, the European Union, Japan and the United States joined to bring a case to the WTO over China's measures involving exports of rare earths, tungsten and molybdenum.

They claimed that the restriction had limited other countries' access to the minerals, giving China a competitive advantage and hurting other producers and consumers.

Rare earths, a class of 17 mineral elements, are some of the most sought-after metals due to their vital role in alternative-energy technologies like wind turbines and electric car batteries.

China, with rare earth reserves accounting for about 23 percent of the global total, supplies more than 90 percent of the world's demand, but at the cost of much pollution.

As a result of the WTO ruling, it is very likely that China will lift export tariffs. The existing export quota system has been "invisible" in recent years since actual export volumes fell short of quotas.

Prices of the minerals were weak in 2013, affecting Chinese producers.

In Baotou, Inner Mongolia, which has 34 large-scale producers, the industry's revenue reached 1.81 billion yuan ($290 million) last year, down 25.3 percent.

Profits sank 4.7 percent to 210 million yuan, while exports slid 47.2 percent to 31 million yuan.

China's leading rare earth producer, Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co Ltd, said net profit slumped 71.7 percent year-on-year to 69.38 million yuan in the first quarter of 2014.

Revenue tumbled 52.8 percent to 1.09 billion yuan.