China Rare Earth Holdings saw its share price surge 10.5 per cent yesterday in Hong Kong after the US, the European Union and Japan lodged WTO complaints against Beijing for restricting exports of the minerals.
Analysts said the company may benefit from greater political pressure on Beijing to relax its grip on the mining of rare earth ores and the export volume of processed rare earth oxides - the main products of the company.
This may reduce the cost of raw materials for the company, which processes rare earth minerals into materials used in manufacturing components in hi-tech goods. Its shares closed at HK$2.53.
Shanghai-listed Inner Mongolia Baotou Steel Rare Earth, an upstream miner of rare earth ores, saw its share price fall up to 4.7 per cent before ending 0.3 per cent higher at 64.17 yuan, with fears over greater supply and hence a lower price for rare earth minerals.
Phillip Securities analyst Fan Guohe said that while the WTO dispute on export quotas may have an impact on export volume and prices, ultimately their biggest determinant was the strength of Beijing's administrative measures.
'Quotas have an impact, but rare earth prices are fundamentally more driven by demand and supply-side administrative measures such as more stringent environmental protection and higher resources tax,' the Shanghai-based analyst said.
He pointed to last year's non-fulfilment of the quotas to demonstrate that the key to rare earth supply is not quotas but administrative measures, such as inspections vis-a-vis environmental protection standards, adding that smuggling accounts for a significant amount of supply.
Beijing has cut export quotas from 65,609 tonnes in 2005, to 30,184 tonnes this year. It said in 2009 that it would stop issuing new rare earth mining licences until 2015.
Some estimates place the annual amount of rare earth oxides smuggled out of China at 10,000 to 20,000 tonnes, according to the Institute for Applied Ecology, a German sustainable-development research centre.
US and European officials said the restrictions amounted to unfair trading practices against World Trade Organisation rules.