China has set up a minimum production threshold for rare-earth producers for the first time on Monday, the latest attempt to rein in the unruly industry that has caused a WTO challenge by the U.S., European Union and Japan.
The current production capacity will be cut by 20 percent based on the new rule, according to a document issued by the Ministry of Industry and Information Technology (MIIT).
A rare-earth mining company should have annual production capacity of at least 20,000 tons of rare-earth oxides and for a rare-earth smelting company the minimum annual production capacity is 5,000 tons, the document said. Their fixed-asset investment must also account for at least 20 percent of total investment, according to the new rules.
It also gave minimum yearly extraction thresholds for specific rare earths and prohibited the mining of single elements.
About a third of the 23 existing rare-earth miners and almost half of the 99 smelting and metallurgy processors will fail to reach the standards, China National Radio reportedMonday citing Jia Yinsong, head of the rare-earth office with the MIIT.
The new rule is intended to protect the country's rare-earth resources and the environment, as well as pushing forward upgrading of the industry and regulating production so as to ensure the healthy development of the sector, the MIIT said.
Inner Mongolia Baotou Steel Rare-earth Hi-tech Co (600111.SH), China's biggest producer of rare earth materials, jumped 9.4 percent to 41.46 yuan on Monday, amid the rules released.
The sector is highly fragmented and full of small operations, said Chen Zhanheng, an expert at the Chinese Society of Rare Earths.
The authorities have been cracking down on illegal mining and smuggling activities for years, but such activities are still rampant. The volume of exports through illegal means was 20 percent higher than that through official channels in 2011, said a white paper issued by the State Council in June.
Illegal exploration has caused environmental damages. In Ganzhou, costs for tackling environmental pollution could amount to 38 billion yuan, according to Su Bo, vice minister of the MIIT.
The WTO has set up a panel over the China rare earth dispute with U.S., Japan and the European Union. These 17 rare earths, each an element on the periodic table, are vital to wide range of products and materials like smart phones, wind turbines, electric car batteries, and countless other applications.
MIIT has set both permit and production quotas on rare earth mining and refining on June 13th, suspending the issuance of new licenses for rare earth prospecting and mining, and was reported to have been stockpiling rare earth inventories since July 5th.
Baotou Steel Rare-Earth Hi-Tech will join six other firms to invest a total of 70 million yuan ($10.98 million) to start a rare earths trading platform in early August.