Tax changes in China will drive up rare earth prices

BEIJING - Several Ministries in China are discussing heavier taxes on rare earth producers - and an announcement on the changes will probably be made during the second half of the year. 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.

The World Trade Organisation (WTO) in late March ruled that China had acted inconsistently with WTO rules with regard to export measures imposed on rare earths. As a result of the WTO ruling, it is very likely that China will lift export tariffs, using the taxes and other measures to manage the rare earth industry.

In 2011, China controlled 95% of the world’s supply of the 17 rare earths which are used to make a range of high-tech products. However, after the Government began imposing limits on exports of rare earths, driving up prices globally, China’s share fell to 80% as overseas suppliers ramped up production, leading to excess supply within China.