The Relationship between Changes in China's Export Policy and Rare Earth Prices

This paper analyzes relations between China's export restrictions and rare earth prices in recent years.China has decreased the rates of Value Added Tax (VAT) rebates on rare earths raw materals (ores, metals and compounds) since 2004. It has also increased the rates of export duties on the same items since 2006. It appears that China has taken such measures to restrict outflows of rare earth raw materials, and these measures have been taken several times in recent years. Rare earth prices generally soared for the last several years. For example, price of dysprosium, one of the rare earth elements, has increased by about six times between June 2003 and June 2008.We analyzed relations between China's measures for export restrictions and prices of ten rare earth metals between June 2003 and June 2008 by using regression models. The findings of this analysis are as follows.(1) There is a strong tendency in which rare earth metal prices increase significantly soon after enforcement of an export restriction by China.(2) As China repeats measures for export restrictions, length of time between enforcement of such a measure and occurance of price increase has become shorter.This paper also mentions the possibility that demand for rare earths will be less price elastic in the near future. It is highly probable that growing needs to tackle global warming will require people to buy a greater number of eco-frindly products including hybrid vehicles. In such a situation, demand for rare earths, which are raw materials for essential parts of such products, would increase substantially. In addition, manufacturers of such products would have no choice other than procuring certain amount of rare earths regardless of their prices, since there is few alternative raw materials for these products. Under such circumstances, demand for rare earths would be less price elastic, and thus, rare earth prices in the future are likely to be more volatile.