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Japan retreat leaves rare metals at Beijing's mercy

More than 100 rare earth producers in China will be consolidated into six by June.   © Not selection

TOKYO -- As Japanese companies begin stepping away from rare metals due to slumping prices, China is beginning to boost its presence in the market.

     State-owned Japan Oil, Gas and Metals National Corp., also known as JOGMEC, in December 2015 cancelled a joint exploration contract for a tungsten mine in Australia. China produces 80% of the global supply of tungsten, one of the raw material used in the manufacture of carbide tools.

     JOGMEC entered into the contract with an Australian company in 2011, bearing about 400 million yen ($3.62 million) of the exploration costs. JOGMEC had envisaged handing the contract over to interested Japanese companies once reserve amounts had been assessed.

     However, rare metal prices tumbled as much as 60% from the time the corporation initiated the deal. With trading houses losing interest, JOGMEC decided to pull the plug. "Investment cannot be recouped unless the prices double the current level," said a representative.

     The slump in prices has prompted a number of Japanese companies into a strategy reassessment. In February, Showa Denko President Hideo Ichikawa hinted at a further overhaul of its rare-earth metals business, including a possible alliance with another company. In July 2015, the chemical manufacturer announced it would dissolve its consolidated subsidiary Baotou Showa Rare Earth High-Tech New Material, which manufactures and sells rare-earth magnet alloy in China.

     Diversifying suppliers of rare metals -- which are unevenly distributed throughout the world -- has been a long-standing problem for Japan.

     Rising tensions over the Senkaku, or Diaoyu, Islands led to Beijing to impose a de facto embargo on exports of the metals to Japan from 2010 to 2011, causing prices to surge. Prices of neodymium, a rare-earth metal used for high-performance magnets, were 10 times higher than current prices.

     Soaring prices led Japan to promote recycling and the development of alternative materials. However, rare metals remain an essential resource in the quest to downsize and boost performance of automobiles and other equipment.

     "The slump in prices is discouraging producers from curbing rare metal usage," said an engineer at a major automaker tasked with reducing the company's use of rare metals.

     The materials make it possible to make products smaller more effectively, "home appliance manufacturers have started to use rare-earth magnets again to make motors for air conditioners," said an executive at a major magnet producer. Rare earths demand in Japan jumped 8.1% on the year to 15,412 tons in 2015, according to the Japan Society of Newer Metals.

     Slowly but surely the market is being forged into an oligopoly. More than 100 rare-earth producers in China will be consolidated by June, leaving 90% of global supply in the hands of a mere six companies. Similar moves are also afoot in the antimony and other rare metals markets.

     According to U.S. media reports, a Chinese company has made inquiries about acquiring bankrupt American rare metal producer Molycorp.

     Japanese companies, on the other hand, have shown little interest. "We were approached to buy Molycorp, but we turned down," said an official at a major Tokyo trading house.

     While Japan Inc. is losing interest, China is intent on boosting its presence in the rare metal market again. Concerns over supply may be waning due to falling prices, but stable supply could be at risk in the medium and long term.

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