Japanese Economy Threatened by China Rare Earth Metals Ban

By: Money_Morning

Jason Simpkins wites: Japanese authorities last Friday released from detention the captain of a Chinese fishing boat that was found in disputed waters. However, China continues to withhold exports of rare earth metals to its island neighbor.

Rare earth metals are crucial to Japan's high-tech industry, and the ban on shipments from China, which has been in place since Tuesday of last week, could cripple the country's economy.

There are 15 different types of rare earth metals, which are used in high-tech devices like computer display screens, smart bombs, and hybrid-car batteries. However, the metals are scattered across the globe and very difficult to extract. They are in increasingly short supply as world demand surges, with industry officials predicting a global shortfall of 30,000 to 50,000 metric tons by 2012.

China, having realized the importance of these metals early on, invested heavily in extraction technology over the past two decades. The country now controls more than 95% of recoverable reserves.

China has cut export quotas for rare earth elements by 72% for the second half of this year, capping foreign shipments at 7,976 metric tons, down from 28,417 tons for the same period last year.

Last week's political dispute, and the subsequent rare mineral ban, made things even harder on Japan, whose automotive industry leads the world in fuel-efficient vehicles.

There are more than 50 pounds of rare earth metals under the hood of a Toyota Motor Corp. (NYSE ADR: TM) Prius. Terbium can cut the electricity demand of lights by up to 80% and fractions of Dysprosium can significantly reduce the weight of magnets in electric motors.

Japan has already drafted a "Strategy for Enhancing Stable Supplies of Rare Minerals," and Japanese Foreign Minister Katsuya Okada warned that China risks losing foreign investments unless it introduces more transparency and consistency into its business rules.

Meanwhile, the United States - which has its own trade issues with China - is looking into whether or not the Asian juggernaut is breaking World Trade Organization (WTO) rules by giving preferential access to rare earth minerals to domestic companies.

China claims it needs a growing proportion of these metals for its own industries and the nation's top producer, Inner Mongolia Baotou Steel Rare-Earth, plans to use 9% of this year's production to build a stockpile that could grow to 200,000 metric tons.

However, this is the second time this month that Japan has accused China of intentionally undermining its economy.

Earlier in September, Japan intervened in the currency market for the first time since 2004 to weaken its currency, the yen, after China purchased Japanese bonds. Some analysts and Japanese policymakers had theorized that China was attempting to hamper Japan 's recovery by keeping the yen excessively strong.

"I don't know the true intention" behind China's purchase of $6.9 billion (583.1 billion yen) of Japanese government bonds in July, Finance Minister Yoshihiko Noda said earlier this month.

China on Oct. 1 will celebrate National Day, the anniversary of the founding of the People's Republic of China in 1949 after more than a half-century of Japanese incursions into the Mainland.

Source : http://moneymorning.com/2010/09/29/rare-earth-metals-ban/

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