China rare earth prices explode as export volumes collapse 22 Mar 2011 14:11

By Tom Miles

BEIJING, March 22 (Reuters) - China's exports of rare earth metals burst through the $100,000-per-tonne mark for the first time in February, up almost ninefold from a year before, while the volume of trade stayed far below historical averages.

China's squeeze on rare earths, which are used in a wide range of hardware including precision-guided weapons, hybrid car batteries and iPads, has forced prices up dramatically since July last year, when each tonne fetched a mere $14,405 on average.

The apparent price rises have averaged $10,000 per tonne per month but accelerated in February, galloping ahead by $34,000 per tonne, according to Reuters calculations based on data from China's Customs office.

Last month each tonne of exports was valued at $109,036, including the cost of insurance and freight, almost half as much again as the average value in January.

The explosion in export values has coincided with a collapse in volumes coming out of China, the source of almost all the world's rare earth supplies, which has cut export quotas of the 17 rare earth metals and raised tariffs on exports.

China's actions have infuriated its trading partners but lifted the shares of the few mining and prospecting companies outside China that are well-placed to capitalise on the constriction of Chinese supply.

They include U.S. miner Molycorp Inc <MCP.N>, Canada's Rare Element Resources <RES.V> and Neo Material Technologies <NEM.TO> and Australia's Arafura <ARU.AX> and Lynas <LYC.AX>.

But those firms' share prices have been under pressure this month because Japan's earthquake and tsunami are expected to temporarily slash demand from China's biggest customer. In February, 281 tonnes of Chinese exports went to Japan, valued at $38.9 million or $138,406 per tonne. [ID:nN15270138] <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For a table of China's minor metals trade, including rare earth exports, please click [MINMTL/CN]

For a graphic of export volumes and values:

http://graphics.thomsonreuters.com/11/03/CN_RREXP0311_CC.gif

For a graphic of the discrepancy between China's old and new ways of presenting rare earth export volumes:

http://graphics.thomsonreuters.com/11/02/CN_RRERTH0311.gif ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

China exported a total of 750 tonnes in February, slightly more than the 647 tonnes shipped in January but otherwise the lowest monthly volume since February 2009, when demand was hit by the global financial crisis.

China's Customs office changed its method of presenting rare earths exports in its headline data this year, boosting the reported volume by including products made from rare earth metals in the total. [ID:nTOE728041]

By that method, exports were 2,976 tonnes in February, up by 132 percent from a year before, when the figure did not include rare earth products.

(Editing by Ken Wills)

((tom.miles@thomsonreuters.com; +86 10 6627 1200; Reuters Messaging: tom.miles.reuters.com@reuters.net))

((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com)) Keywords: CHINA RAREEARTH/

By Tom Miles

BEIJING, March 22 (Reuters) - China's exports of rare earth metals burst through the $100,000-per-tonne mark for the first time in February, up almost ninefold from a year before, while the volume of trade stayed far below historical averages.

China's squeeze on rare earths, which are used in a wide range of hardware including precision-guided weapons, hybrid car batteries and iPads, has forced prices up dramatically since July last year, when each tonne fetched a mere $14,405 on average.

The apparent price rises have averaged $10,000 per tonne per month but accelerated in February, galloping ahead by $34,000 per tonne, according to Reuters calculations based on data from China's Customs office.

Last month each tonne of exports was valued at $109,036, including the cost of insurance and freight, almost half as much again as the average value in January.

The explosion in export values has coincided with a collapse in volumes coming out of China, the source of almost all the world's rare earth supplies, which has cut export quotas of the 17 rare earth metals and raised tariffs on exports.

China's actions have infuriated its trading partners but lifted the shares of the few mining and prospecting companies outside China that are well-placed to capitalise on the constriction of Chinese supply.

They include U.S. miner Molycorp Inc <MCP.N>, Canada's Rare Element Resources <RES.V> and Neo Material Technologies <NEM.TO> and Australia's Arafura <ARU.AX> and Lynas <LYC.AX>.

But those firms' share prices have been under pressure this month because Japan's earthquake and tsunami are expected to temporarily slash demand from China's biggest customer. In February, 281 tonnes of Chinese exports went to Japan, valued at $38.9 million or $138,406 per tonne. [ID:nN15270138] <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For a table of China's minor metals trade, including rare earth exports, please click [MINMTL/CN]

For a graphic of export volumes and values:

http://graphics.thomsonreuters.com/11/03/CN_RREXP0311_CC.gif

For a graphic of the discrepancy between China's old and new ways of presenting rare earth export volumes:

http://graphics.thomsonreuters.com/11/02/CN_RRERTH0311.gif ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

China exported a total of 750 tonnes in February, slightly more than the 647 tonnes shipped in January but otherwise the lowest monthly volume since February 2009, when demand was hit by the global financial crisis.

China's Customs office changed its method of presenting rare earths exports in its headline data this year, boosting the reported volume by including products made from rare earth metals in the total. [ID:nTOE728041]

By that method, exports were 2,976 tonnes in February, up by 132 percent from a year before, when the figure did not include rare earth products.

(Editing by Ken Wills)

Blogged with the Flock Browser

RPT-SPECIAL REPORT-Advanced economies at advantage in disaster recovery 14 Mar 2011 10:06

  (Repeats report filed late on Sunday)  
    By Alan Wheatley, Global Economics Correspondent  
    BEIJING, March 13 (Reuters) - The earthquake that devastated 
northeast Japan displaced the country's main island by 2.4 
metres and even tilted the axis of the Earth by nearly 10 
centimetres. The shock sounds awesome but it was imperceptible. 
History suggests the same will be true of the economic impact.    
    The instinctive reaction when viewing the extensive damage 
and frantic efforts to secure damaged nuclear reactors is to 
assume economic havoc will follow.  
    But researchers who have studied similar disasters in rich 
countries reach a reassuring conclusion: human resilience and 
resourcefulness, allied to an ability to draw down accumulated 
wealth, enable economies to rebound quickly from what seem at 
first to be unbearable inflictions - be it the Sept. 11, 2001, 
attacks on New York or Friday's 8.9-magnitude earthquake, the 
worst in Japan's history.  
    Japan itself provides Exhibit No. 1 in foretelling the arc 
of recovery. A 6.8-magnitude temblor struck the western city of 
Kobe on Jan. 17, 1995, killing 6,400 people and causing damage 
estimated at 10 trillion yen, or 2 percent of Japan's gross 
domestic product.   
  <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^  
    Graphic on Kobe quake http://link.reuters.com/jec58r  
    Main story on Japan quake [ID:nL3E7EC0D6]  
    Analysis on quake recovery[ID:nN12187648]    
  ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>  
    The importance of Kobe's container port, then the world's 
sixth-largest, and the city's location between Osaka and western 
Japan made it more significant for the economy than the more 
sparsely populated region where the latest quake and tsunami 
struck. Extensive disruption ensued, yet Japan's industrial 
production, after falling 2.6 percent in January 1995, rose 2.2 
percent that February and another 1.0 percent in March. GDP for 
the whole of the first quarter of 1995 rose at an annualised 
rate of 3.4 percent.  
    "Despite the scale of the disaster, it is hard to find much 
evidence in the macroeconomic data of the effects of the Kobe 
earthquake," said Richard Jerram, chief Asian economist at 
Macquarie in Singapore and a veteran Japan-watcher.  
    Indeed, Takuji Okubo, chief Japan economist at Societe 
Generale in Tokyo, noted that Japan's economy grew by 1.9 
percent in 1995 and 2.6 percent in 1996, above the country's 
trend growth rate at the time of 1.5 percent. Private 
consumption, government spending and, especially, public fixed 
investment all grew above average in 1995 and 1996, Okubo said 
in a report. By analogy, the medium-term impact on growth from 
the latest quake was also likely to be positive, he said.  
    Today's circumstances are, of course, different. Japan's 
economy has floundered in the intervening 16 years and its 
public finances have deteriorated. On paper, the country, is 
perhaps less well prepared at this stage of the economic cycle 
to pick itself up off its feet.  
    But Mark Skidmore, an economics professor at Michigan State 
University, attaches greater importance to a rich society's 
capacity to constantly adapt to the risks it faces. In the case 
of Japan, prone to regular earthquakes, this means improving its 
disaster response systems and adopting the latest techniques to 
help buildings withstand shocks.   
    Most of the damage wrought in Japan was by the ensuing 
tsunami, for which there was no time to prepare, and not by 
collapsing buildings - even though the quake was 1,000 times 
more powerful than the Kobe one.  
    "We don't know yet how devastating this is going to be 
economically, or even in terms of human casualties, but Kobe was 
able to rebound very quickly and I think there is the same 
potential here," Skidmore said in a telephone interview.  
    Skidmore and Hideki Toya from Nagoya City University in 
Japan have examined data for 151 countries over the period 
1960-2003 and found that countries with higher levels of income, 
education and financial development suffer fewer losses from a 
natural disaster. Other researchers have reached similar 
conclusions.  
    "As incomes rise in a society, you can devote more resources 
to safety. So economies that have relatively high exposure to 
earthquakes or hurricanes start taking the precautions they 
need. Japan is among the best prepared in the world because they 
have high exposure and high income," Skidmore said.  
      
    OPENNESS TO TRADE  
    Countries with an openness to trade are also better able to 
cope with disasters because they create supply chains as well as 
commercial and diplomatic relationships that prove to be 
important. A well-oiled, well-financed government that can 
spring into action and limit the spillovers of the disaster is 
also crucial. This bodes well for Japan.  
    "They have the resources. They have the social and economic 
and government infrastructure to effectively utilise the 
resources that may come in from outside as well as internally. 
They can focus not just insurance but also government assistance 
to respond effectively," Skidmore said.  
    Another U.S. academic who has studied the lessons from Kobe, 
the late George Horwich of Purdue University, noted that media 
reports said it could take the city as long as a decade to 
recover. In the event, within 15 months manufacturing in Kobe 
was at 98 percent of its pre-disaster trend; imports had fully 
recovered within a year and exports were back at 85 percent 
capacity; and 79 percent of shops had reopened by July 1996.  
    "Natural disasters in large advanced economies tend not to 
significantly reduce current aggregate output or induce an 
associated rise in the general price level. In geographically 
dispersed economies, disasters are almost always localised 
events. But in any economy, it is the capital stock, not output, 
that is directly reduced by the disaster," he wrote in a paper 
published in 2000.  
    Horwich concluded that physical capital is the most visible 
contributor to economic recovery but human capital is the 
dominant economic resource. And Japan has that in spades.  
    "Destroy any amount of physical capital, but leave behind a 
critical number of knowledgeable human beings whose brains still 
house the culture and technology of a dynamic economy, and the 
physical capital will tend to reemerge almost spontaneously," he 
said.  
    The 2008 earthquake in the western Chinese province of 
Sichuan, which killed nearly 90,000 people, is in line with the 
academic finding that strong institutions and human capital are 
central to the process of recovery.   
    As a developing country, China had not made enough buildings 
earthquake-resistant. Many schools crumbled. Yet the ruling 
Communist Party mobilised vast resources for rescue, relief and 
reconstruction. As a result, according to a government think 
tank, the disaster actually added an estimated 0.3 percentage 
point to China's GDP growth in 2008. Less than three years on, 
the office charged with reconstruction has been disbanded, its 
work complete, an official said on Sunday.  
    Compare and contrast with Haiti, the most impoverished 
country in the Western Hemisphere. The 7.0 magnitude quake that 
struck on January 12, 2010, was much less powerful than that in 
Japan, but it killed at least 250,000 people, injured 300,000, 
left 1.5 million homeless and wrecked large parts of the 
capital, Port-au-Prince.  
    With weak finances and no emergency fund to tap, Haiti's 
economy slumped at least 5 percent last year, and the release of 
billions of dollars in international aid has been too slow to 
settle the homeless and get basic services running again, let 
alone spur an economic recovery. A cholera epidemic and 
political instability over contested elections reflect the 
failures of reconstruction efforts and in turn have made 
recovery even more difficult.  
    Haiti's woes confirm the findings of numerous researchers 
that poverty, high unemployment, limited access for the poor to 
basic services and a lack of strong national and local 
institutions amplify the economic blow of natural disasters.  
    "The impacts of natural disasters on society and the 
environment are substantially greater in less developed 
countries," according to a paper by Reinhard Mechler, who heads 
the research group on disasters and development at the 
International Institute for Applied Systems Analysis near 
Vienna.  
  
    INDIAN OCEAN TSUNAMI  
    Another case in point is Aceh, at the northern tip of the 
Indonesian island of Sumatra, which bore the brunt of the Indian 
Ocean tsunami of Dec. 26, 2004.   
    Of the 230,000 people killed by the speeding, towering 
waves, 167,000 were from Aceh, which suffered total damage of 
about $4.5 billion. A big relief effort was launched, but more 
than two years later a report from the Asian Development Bank 
Institute said key reconstruction targets had not been met and 
coordination among the many government agencies and 
international donors was poor.    
    With Aceh accounting for just 2 percent of Indonesia's 
economy, the catastrophe was not enough to move the needle of 
the country's GDP. But, as with Haiti, the shortcomings of the 
region's recovery stood In stark contrast to the experience in 
Kobe.  
    After the initial loss of output, disasters in advanced 
economies do not invariably result in a boost to economic 
activity.  
    Gus Faucher, director of macroeconomics at Moody's 
Economy.com, a consultancy, has cited the aftermath of Hurricane 
Katrina, which devastated New Orleans in 2005: the city did not 
experience an economic bounce because so many residents left, 
government aid was slow to arrive and insurance payments were 
low.  
    But, as a rule of thumb, reconstruction jobs and the influx 
of emergency assistance apply balm to an economy's wounds. Take 
the 6.7 magnitude Northridge quake near Los Angeles in 1994 that 
killed 57 people, injured 9,000 and resulted in about $40 
billion in property damage.  
    Daniel Blake, an economics professor at California State 
University Northridge, found a year later that the $18 billion 
in aid and insurance payments made by the federal government 
actually jump-started the area's fragile economy after four 
years of recession.  
    And after the 1989 Loma Prieta earthquake, which severely 
damaged major roads around the San Francisco Bay, an official 
estimate put the Bay Area's lost economic output at between $181 
million and $725 million, a fraction of its 1989 gross regional 
product of $174 billion. Indeed, the California Trade and 
Commerce Agency later found that the Bay Area even managed to do 
better than many parts of the state in weathering the early 
1990s recession.  
    A more recent example is that of Chile, where 500 people 
died in an 8.8 magnitude quake in February 2010 that caused an 
estimated $30 billion hit to the economy due to damaged 
infrastructure and property and lost productivity.  
   Both the government and central bank trimmed their growth 
outlooks after the quake, estimating it could shave around 0.25 
to 0.5 percentage point off annual growth. But the economy grew 
about 5.2 percent in 2010, within the original range of 
projections. With the state only halfway through its rebuilding 
programme, GDP growth this quarter is likely to accelerate to 
around 8 percent.  
    "The impact of reconstruction on growth is becoming stronger 
as time goes on," said Finance Minister Felipe Larrain, who 
financed an $8.4 billion recovery package with a mix of bond 
issues, higher royalties levied on mining companies and and 
savings from a boom in copper, Chile's principal export. 
[ID:nN12197354]   
    So what does all this mean for Japan?   
    Pete Wilson, California's governor at the time of the 
Northridge quake in 1994, says it was important to cut through 
red tape. By waiving the requirement for environmental impact 
hearings and setting incentives for building contractors, Wilson 
told Reuters he managed to reopen Interstate 10, then the 
world's busiest road, in just over two months. Some had feared 
it would take two years.  
    Chile's experience shows that a government is perfectly 
justified in resorting to deficit spending to cushion a natural 
disaster because of the shot in the arm it delivers to the 
economy, said Alfredo Coutino, Latin America director for 
Moody's Analytics.   
    "If one lesson can be learned from Chile's case, it is that 
Japan's government has to make a quick move in terms of 
implementing the reconstruction with a variety of funding 
sources:  issue debt, reallocation of public resources, and 
international aid," he said.  
    Japan's problem is that its gross public debt, equal to 
about twice GDP, is already the heaviest in the world. With an 
ageing population posing an ever-growing burden on Japan's 
public finances, rating agencies have sounded the alarm and 
warned of possible downgrades unless politicians bury the 
hatchet and come up with a plan to reduce the debt over the 
medium term.  
    "The earthquake should lead to somewhat expansionary fiscal 
policy. However, due to its already large deficit, it is 
unlikely that the Japanese government would plan a large scale 
fiscal stimulus," said Okubo, the Societe Generale economist.  
  
    YEN WILD CARD  
    The reaction of the yen in coming weeks is another wild card 
in assessing the impact on Japan's economy. The Bank of Japan, 
which meets on Monday, is widely expected to pledge as much 
money as needed to prevent the repercussions of the quake from 
destabilising financial markets and the banking system.    
    Economists also expect the central bank will signal its 
readiness to ease monetary policy further -- even though its 
policy rate is already near zero -- if the damage from the quake 
threatens Japan's fragile economic recovery.  
    That prospect would normally weaken the yen, but economists 
are keenly aware that the Japanese currency gained sharply in 
the weeks after the Kobe catastrophe. It rose from 96 per dollar 
in late February and briefly punched through 80 to an all-time 
high on April 19, 1995, before reversing course after the BOJ 
cut interest rates.  
    Trade tensions with the United States were a driving force 
in 1995 and are absent today. A rush to bring capital back to 
Japan, especially by insurers anticipating large claims, was 
also a factor post-Kobe and could be again. But Jerram, the 
Macquarie economist, doubted that history would repeat itself.  
    "Significant yen repatriation that could push the currency 
higher and, at an extreme, disrupt global markets, looks 
unlikely," he said.  
    Another "known unknown" is whether serious damage to the 
Fukushima Daiichi nuclear plant will cause countries including 
Britain, China and Italy to reappraise plans to boost investment 
in nuclear power. If they do, it would be logical to expect 
higher oil, natural gas and coal prices. (For related stories, 
click on [ID:nN11262134] [ID:nN12287930])  
    "A serious accident like that will have repercussions in all 
countries with nuclear," Bertrand Barre, scientific adviser to 
French nuclear reactor maker Areva <CEPFi.PA>, told Reuters.  
    If there are clear lessons, we will apply them. We need to 
take time to work out the consequences and act." France depends 
on nuclear power for nearly 80 percent of its electricity 
[ID:nLDE72B0FP]  
    Japan's earthquake is just the latest in a series of 
unwanted shocks for the world economy, which is still far from 
having shaken off the fallout of the 2008 global financial 
crisis. Political turmoil in North Africa has reduced oil 
supplies from Libya and raised the spectre of wider disruptions 
to deliveries from the Middle East.   
    Food prices have climbed to record highs. The euro zone debt 
crisis is far from over, with bond yields for Greece, Ireland 
and Portugal at seemingly unsustainable levels. Policy makers in 
the main economies who have slashed interest rates close to zero 
and run up huge budget deficits would appear to have little 
ammunition left to fire if consumer, business and investor 
confidence takes a dive because of Japanese quake.  
    But economists at J.P. Morgan said it was important to bear  
in mind that most, if not all of these shocks will prove to be 
temporary and are unfolding against a backdrop of very strong 
fundamental supports for growth, including booming industrial 
production, improving labour markets and a 17 percent rise in 
global share prices since September.  
    The bank has recently trimmed its forecasts for the United 
States and the euro zone but its projection for global growth in 
the first half of 2011 remains at a rate of 3.7 percent, which 
is 1 percentage point above trend.  
    "Put differently, the shocks to date would have to magnify 
considerably to push global growth below this trendline." the 
J.P. Morgan economists said in their latest Global Data Watch 
publication.  
 (Additional reporting by Braden Reddall in San Francisco, Simon 
Gardner in Santiago and Kieron Murray in Mexico City)  
 ((alan.wheatley@thomsonreuters.com; +86 1391 007 9146; 
alan.wheatley.reuters.com@reuters.net))  
 (If you have a query or comment on this story, send an email to 
news.feedback.asia@thomsonreuters.com))    
  
 
 
Keywords: JAPAN QUAKE/RECOVERY   

Blogged with the Flock Browser

China's 5 power firms eye equity market for more cash -paper 24 Feb 2011 08:57

SHANGHAI, Feb 24 (Reuters) - China's five major state-run power generation companies hope to raise more money for their new energy units either by an initial public offering or by raising equity this year, the Shanghai Securities News reported on Thursday.

Saddled with high debts and fighting high fuel prices, the power firms, including Guodian Corp, Huadian Corp, Huaneng Group, Datang Corp and China Power Invest Corp, are aiming to tap the market to fund their string of renewable energy projects, the paper said.

Guodian, parent of GD Power Development Co <600795.SS>, Guodian Changyuan Power Development Co <000966.SZ> and China Longyuan Power Group Corp <0916.HK>, is planning to list its unit Guodian Technology and Environment Group and issue yuan-denominated bonds through its Longyuan subsidiary this year.

Huadian Corp, parent of Hong Kong-listed Huadian Power International Corp Ltd <1071.HK>, hopes to speed up the public listing of its renewable resources department Fuxin New Energy Co in 2011 as well as its engineering dept by 2012, the paper said, citing Huadian's General Manager Yun Gongming.

An unidentified official at Datang Group said the firm would push for its Shanghai-listed subsidiaries, Guaguan Power <600236.SS> Huayin Power <600744.SS> to raise equity, while China Power Investment Corp was separately planning to list some unspecified units.

Huaneng Corp also plans to accelerate efforts to list its renewables division this year, after the firm abandoned its IPO of up to $1.3 billion last year due to weak market conditions. [ID:nTOE6BC069]

Blogged with the Flock Browser

Singapore-listed commodity cos set to grow-Barron's 10 Jan 2011 05:49

NEW YORK, Jan 9 (Reuters) - Three Singapore-listed commodities companies may challenge large long-established Western companies like Archer Daniels Midland Co <ADM.N>, according to Barron's.

Olam International Ltd <OLAM.SI>, Wilmar International Ltd <WLIL.SI> and Noble Group Ltd <NOBG.SI> may benefit from their Asia-based homes, where the world's largest populations are eager to secure a food supply, Barron's said.

The companies' cash flow has been growing by the upper teens, Barron's said. Noble and Olam, who moved into production from trading, have been buying plantations and other assets, Barron's said.

Olam is the world's largest supplier of cashews and sesame seeds, and is among the biggest sources of cocoa, rice, peanuts and cotton. It operates in 64 countries.

Noble is Asia's biggest supplier of raw materials. Only 22 percent of its revenue comes from agriculture, with the remainder coming from materials such as iron ore.

It has invested heavily in mines and processing.

Wilmar is Asia's leading agribusiness group and the world's largest integrated palm oil company. Demand is expected to grow because of demand for biofuels, which is part of the reason the company bought the sugar and renewable energy businesses from Australia's CSR <CSR.AX>. (Reporting by Ilaina Jonas; Editing by Tim Dobbyn) ((Reuters Messaging: ilaina.jonas.reuters.com@reuters.net, +1 646 223 6193)) Keywor

Blogged with the Flock Browser

RPT WRAPUP2-China's rare earths export cut raises trade concerns 29 Dec 2010 20:32

* China cuts first-half 2011 rare earths exports 35 pct * Move may hit high-tech, automakers * Sony eyes cutting reliance on Chinese supplies * Shares jump in Lynas, Australian and HK rare earth firms (Adds EU Commission comment) By James Regan SYDNEY, Dec 29 (Reuters) - China has raised fresh international trade concerns after slashing export quotas on rare earths minerals, risking action from the United States at the World Trade Organization. China, which produces about 97 percent of the global supply of rare earth minerals, cut its export quotas by 35 percent for the first half of 2011 versus a year ago, saying it wanted to preserve ample reserves, but warned against basing its total 2011 export quota on the first half figures. The U.S. Trade Representative's office was "very concerned" about China's export restraints on rare earths and had raised its concerns with China, a spokeswoman said on Tuesday.[ID:N28253944] A European Commission spokesman said the European Union "notes the latest quota figures and expects China to respect its recent assurance of a guarantee of rare earth supplies to Europe." U.S. makers of high-tech products such as Apple Inc's <AAPL.O> iPads, along with Japanese companies have been scrambling to secure reliable supplies of the minerals outside of China as Beijing steadily reduces export allocations. Japan's Sony Corp <6758.T> said China's move to cut export quotas was a hindrance to free trade and that it would work to reduce its reliance on Chinese supplies. [ID:TOE6BS02D] "At this point in time there is no direct impact on our company. But further restrictions could lead to a shortage of supply or rise in costs for related parts and materials," Sony said in an email statement in response to questions from Reuters. "We will watch the situation carefully." Sony, maker of Bravia brand flat TVs, Vaio PCs and the PlayStation 3 videogame console, will look for ways to cut its use of rare earths, including developing alternative materials, Sony spokeswoman Ayano Iguchi said. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a story on China's quota cuts, see: [ID:nTOE6BR02A] For a factbox on how rare earth is used: [ID:nN28256995] Five facts about rare earth elements: [ID:nN28207547] For a story on US threatening take China to the WTO see: [ID:nN23157001] For a special report on the fight for rare earths, click: http://r.reuters.com/cyc53q For an interactive graphic: http://link.reuters.com/tyk93r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> A BOON TO SOME China's move, however, came as a shot in the arm for some companies. Lynas Corp <LYC.AX>, which owns the world's richest known non-Chinese deposit of rare earths, jumped over 10 percent even though it will be at least a year before it is capable of mining any material from a new lode in Australia. Other rare earths companies, including China Rare Earth Holding Ltd <0769.HK>, Arafura Resources <ARU.AX>, Alkane Resources <ALK.AX> and Greenland Minerals and Energy Ltd <GGG.AX> also gained between 8 percent 10 percent. "Export quotas continue to be a tool for the Chinese government to limit the export of China's strategic resource," Lynas Executive Chairman Nick Curtis said in a statement. "The growth in the Chinese domestic market coupled with a decrease in production of rare earths in China is a likely cause for the tightening of export regulations," said Curtis, whose company is aiming to start production in about a year and has already forged supply contracts with Japanese traders. World demand for rare earths at present is about 110,000 tonnes a year, with China accounting for about 75 percent of total demand with the remainder split between Japan, the United States and Europe, in descending order. Demand for rare earths is set to more than double to 250,000 tonnes by 2015, according to industry estimates. "Concerned parties should not estimate full-year quotas for rare earth minerals just by looking at the first set of quotas," China's Ministry of Commerce said. Final quotas will take into account domestic production and demand both at home and abroad, according to the ministry. DEALS FOR SUPPLY Prices have surged for these minerals, also used in making fluorescent light bulbs, since authorities in Beijing slashed their rare earth exports by 40 percent this summer, saying China needed them for its economic development. Last week, Hitachi Metals Ltd <5486.T> signed a joint venture with U.S.-based Molycorp Inc <MCP.N> to help ensure a steady supply -- an announcement that sent its shares up 15 percent in a single trading session. [ID:TOE6BK053] That followed word earlier this month that Sumitomo Corp <8053.T> agreed to invest $130 million in Molycorp to secure a seven-year supply of the materials. [ID:nN10286929] Since debuting in late July at $14, Molycorp's stock price has nearly quadrupled. Molycorp owns a rare-earth mine in Mountain Pass, California, which is scheduled to resume production next year after a 10-year hiatus. Japan's trade minister, Akihiro Ohata, told reporters on Tuesday he believed Japan would still be able to secure enough rare earth supplies in 2011 even after China's quota cuts, but said the situation would need further study. Ohata's comment was based on the assumption that the expected amount of imports in the first half of 2011 would be roughly equal to the average of imports for the first and second halves of 2010, a spokeswoman for the ministry said. Hyundai Mobis <012330.KS>, South Korea's top automotive parts maker and a major supplier to Hyundai Motor <005380.KS>, said that the quota would have an impact on the two companies, as rare earth is used in electric motors for hybrid vehicles, and as Hyundai Motor is increasing its hybrid vehicle sales. A spokesman for Hyundai Mobis added that the two companies have been preparing measures to cope with rare earth issues, including diversifying imports. (Additional reporting by Nathan Layne and Kiyoshi Takenaka in TOKYO, Tom Miles and Niu Shuping in BEIJING and Hyun Joo Jin and Ju-min Park in SEOUL, Peter Harrison in BRUSSELS; Editing by Jon Boyle; jim.regan@thomsonreuters.com; +612 9373-1814; Reuters Messaging: jim.regan.reuters.com@reuters.net) ((jim.regan@thomsonreuters.com, +612 9373-1814; Reuters Messaging: jim.regan.reuters.com@reuters.net))

Blogged with the Flock Browser

TAKE A LOOK-Key political risks to watch in 2011 22 Dec 2010 10:16

euters correspondents around the world have pulled together the key political risks for investors to watch in 2011.

Click on on the square brackets for the story on screens and on the URL for a pdf.

> Global risks [ID:nLDE6BI0DB] http://r.reuters.com/kag23r > Asia [ID:nL3E6NK0I6] http://r.reuters.com/vav23r > Western Europe [ID:nLDE6BG195] http://r.reuters.com/gag23r > Emerging Europe [ID:nLDE6BG165] http://r.reuters.com/jag23r > Africa [ID:nLDE6BG0YQ] http://r.reuters.com/hag23r > Middle East [ID:nLDE6BK172] http://r.reuters.com/gej23r > Latin America [ID:nRISKLATAM] http://r.reuters.com/vav92r > North America [ID:RISKUS] http://link.reuters.com/cyh92r ((Compiled by Peter Apps))

Keywords: POLITICS RISKS/LOOK

Wednesday, 22 December 2010 01:26:34RTRS [nRISK ] {C}ENDS

Keywords: POLITICS RISKS/LOOK

Blogged with the Flock Browser

FACTBOX-Key political risks to watch in Asia in 2011 22 Dec 2010 10:21

By Andrew Marshall and Daniel Magnowski

SINGAPORE, Dec 21 (Reuters) - Asia's economies have been crucial engines of global growth as the world crawls out of economic crisis, but the 2011 outlook is clouded by China's growing clout, the volatile situation on the Korean peninsula and corruption scandals in India.

Following is a summary of key risks to watch in 2011:

To read this as a PDF: http://r.reuters.com/vav23r

For other regions: [ID:nRISK]

HOW WILL CHINA USE ITS GEOPOLITICAL AND ECONOMIC CLOUT?

China's sharply strengthening geopolitical and economic influence brings a new set of global risks -- how will it manage its growing clout, and its relations with the rest of Asia and the United States? China is the main engine of world economic growth, which means the question of whether its economy is overheating is a global concern.

What to watch:

-- Currency tension with the United States. Tension between Beijing and Washington over the value of the yuan appears to have receded. But the publication, delayed since October, of a U.S. Treasury report into whether China manipulates its currency may set the tone for relations between the world's biggest economies. Markets will also keep a close eye on President Hu Jintao's visit to the United States in January.

-- How China uses its regional influence. Fallout from a territorial dispute with Japan in September was mainly political rather than economic, though China's apparent freeze on rare earth exports was a key factor in Tokyo's eventual capitulation. Other countries with maritime territorial disputes with Beijing viewed that confrontation with alarm, fearing China's hawkish stance heralds a higher risk of further standoffs that could damage trade and regional economies. [ID:nTOE6B0024]

-- Inflation and interest rates. China will set an inflation target in 2011 of 4 percent, higher than this year's 3 percent, an indication that the government will hold back from aggressive monetary tightening even as price pressures mount. But if inflation looks like it will significantly exceed the target, policymakers may raise interest rates sharply. [ID:nTOE6BD02D]

WILL NORTH KOREA UNLEASH WAR -- OR IMPLODE?

Tensions on the Korean peninsula are at their highest in years following the sinking of a South Korean naval vessel in March with the loss of 46 lives and an exchange of artillery fire in November that killed four on a disputed island. With major powers at odds over how to handle the crisis, and secretive North Korea entering a potentially lengthy period of leadership transition, the risks of war on the peninsula or the sudden implosion of the Pyongyang regime are key uncertainties.

What to watch:

-- The small but serious risk of war. Analysts believe serious conflict to be unlikely. North Korea's ill-equipped armed forces face quick and near-certain defeat if they wage full-scale war, and Pyongyang is well aware of its limitations. But North Korea does have the ability to unleash thousands of artillery shells on Seoul in the early stages of any conflict, devastating South Korean industry, and any conflict would send regional markets into a nosedive. The biggest risk is that a mistake or miscalculation by the North or South during a game of brinkmanship results in an unintended escalation into a war that nobody wants. [ID:nTOE6B902R]

-- The leadership succession in the North. The appointment of Kim Jong-un, youngest son of the leader, to key positions confirms he is the chosen successor. Rising with him are Kim Jong-il's sister and her husband, forming a powerful triumvirate ready to take over the family dynasty that has ruled North Korea since its founding after World War Two. But given the parlous economic condition of the country, the ruling elites have an ever-shrinking share of the spoils to divide between them, and there is always the chance of an internal challenge to the regime, particularly from within the military.

-- Signs the Pyongyang regime is imploding. Most analysts regard the chaotic collapse of the regime and the sudden reunification of the Korean peninsula as the most serious risk for markets. Unlike war, which is unlikely, regime change is inevitable sooner or later. The only question is when. Most estimates say it could cost Seoul more than $1 trillion to absorb its impoverished neighbour. Besides the enormous fiscal costs, South Korea would have to deal with the possible influx of millions of refugees and the social upheaval that this would cause. Tensions with China could spike as Beijing tries to protect its interests and influence the future of North Korea which it has used as a buffer against pro-Western states.

IS INDIAN ECONOMIC REFORM FURTHER AWAY THAN EVER?

A series of corruption scandals which broke in 2010, chief among them an alleged scam in the telecoms sector that a government auditor said may have cost India up to $39 billion, look set to dominate Indian business and politics in 2011. Corruption may be a fact of doing business in India, and one factored into investors' calculations, but its impact on government could become deeply damaging for Indian markets. Major risks for investors are twofold: that the corruption issue may continue to paralyse parliament with an emboldened opposition blocking proceedings, or that the scandals result in a less business-friendly policy environment. [ID:nSGE6AT09J]

What to watch:

-- Economic reforms stalled. The opposition has shown it can halt the progress of bills through parliament, shouting down debate and forcing the chamber to shut for weeks while it demanded a joint probe into the telecoms scandal. It has vowed to intensify its campaign against the Congress party-led coalition when parliament reopens in 2011, meaning large-scale financial reforms that investors want could well be delayed. Key changes that markets, and especially foreign businesses with an eye on expanding into India, are looking for include recasting the complex tax code to a more investor-friendly goods and services tax, and laws to liberalise the retail sector, keenly anticipated by firms such as Wal-Mart <WMT.N>.

-- Confrontation between government and business. Prime Minister Manmohan Singh's credibility has taken a big blow from the allegations. In December he attacked corporate India for its "ethical deficit" and the worry is this could mark another step on a path towards confrontation between government and business. India's environment ministry has already shown itself unafraid of clashing with corporate interests as it takes an increasingly aggressive stance in trying to enforce green laws. Investments worth tens of billions of dollars, including a proposed $12 billion steel project by South Korea's POSCO <005490.KS>, are up for review, and other firms who have either agreed deals to build factories and industrial plants, or are planning investments, will be wary of the ministry's scrutiny.

WILL POLITICAL RISK BEDEVIL ASIA'S DEVELOPED ECONOMIES?

Uncertainties in two of Asia's two developed economies, Japan and Australia, share a similar root: policy is complicated by their governments' precarious grip on power.

Japanese Prime Minister Naoto Kan's approval rating is around 20 percent and opposition parties can block the passage of laws through parliament. In Australia, Prime Minister Julia Gillard's minority government relies on the support of Green and independent MPs to pass legislation.

In both countries, the chief risk for markets is that administrations become so bogged down in trying to garner day-to-day support, and their leaders preoccupied fighting off internal and external attacks, that they lack the authority or political capital to effectively conduct the business of government, including passing sometimes-unpopular laws. What to watch:

-- Next year's budget in Japan. Government action is needed to deal with deep-rooted problems, most pressingly the burden of huge public debt twice the size of the $5 trillion economy. The ruling Democratic Party of Japan (DPJ) has for months been firefighting rather than taking the tough steps economists say are needed to boost growth. A key test will be passing the budget for the fiscal year 2011/2012, which starts in April.

-- Snap election in Japan. If the government, which has already had to reach out to a smaller party in order to get laws through parliament, finds deadlock so great that it cannot pass the budget, Kan may feel compelled to call a snap election. In any case, voters will get the chance to express discontent with the DPJ in April municipal elections. Even if the party performs worse than expected, Kan is unlikely to resign, not least because there are few if any obvious replacements, and yet another new leader -- Kan is the country's fifth since 2006 -- would not solve its problems. [ID:nTOE6BF01L]

-- Can Japan enact economic reforms? Experts say raising the 5 percent sales tax is key -- a radical idea in a country where the tax has not been increased for years, but one the DPJ has openly broached. Still, with his popularity low and parliamentary power sapped, Kan is unlikely to try to force the issue. In December, the government ordered a 5 percentage point cut in the corporate tax rate starting from April 2011, but analysts doubt the move will boost either Japanese corporate spending or the popularity of the DPJ. [ID:nTOE6BF00L]

-- Australia's mining tax. The government's centrepiece policy is a proposed new tax regime for the resources firms that have long been the backbone of the Australian economy. After taking office in August, Gillard made a deal with miners Rio Tinto <RIO.AX><RIO.L>, BHP Billiton <BHP.AX> <BLT.L> and Xstrata <XTA.L> to cut the headline rate of the new tax to 30 percent from 40 percent, but the matter is far from settled. Final details of the tax are under discussion between the government and mining firms. Smaller miners are unhappy with the plan, and a dispute over royalty payments could scuttle the deal. The government is expected to present the tax law to parliament in May, and it will be voted upon after June, when it will depend on Green support in both houses of parliament. [ID:nSGE6AL03M]

-- Resistance to Singapore's $7.9 billion takeover bid for the Australian bourse (ASX), a deal which cannot go through without Australian political backing. No single owner is allowed to hold more than 15 percent of ASX, a rule which would have to be lifted by parliament. Indications are that the independents and Greens oppose the takeover, and may block it. If the buyout does go ahead, firms will be concerned that it may mean changes to listing rules and higher compliance costs. [ID:nL3E6NE1YB]

WILL SOUTHEAST ASIA'S SURGING MARKETS RUN OUT OF STEAM?

Southeast Asia's financial markets were among the world's best performers in 2010. Indonesia led the pack on growing expectations that it will be awarded an investment grade sovereign rating, but the Philippines and Malaysia also posted impressive gains, and even Thailand staged spectacular stock market and currency rallies despite the worst political violence in its modern history in April and May.

The risk is that these gains unravel in 2011 and that the plug is pulled on the flood of hot money that has buoyed the region's markets. Monetary authorities will probably have to play catch up with other Asian central banks that are further into a tightening cycle, food prices could easily get out of hand, foreign participation in the region's markets is already relatively high and rising U.S. Treasury yields could pull money out of places like Indonesia and the Philippines.

Foreign investors have largely turned a blind eye to Southeast Asian political risk in their hunt for high-yield assets. If enthusiasm begins to wane, a more glass-half-empty view of regional politics could spark a significant reversal.

What to watch:

-- The biggest political risks are in Thailand, where an intractable political conflict remains far from resolution. New general elections must be held by the end of 2011, and given the country's divisions there is a significant risk of unrest during campaigning. If the Puea Thai party backed by fugitive former Prime Minister Thaksin Shinawatra wins enough electoral support to form a government, a coup or judicial intervention to overturn the result is almost inevitable -- Thailand's elites remain bitterly opposed to Thaksin and terrified of political reprisals if a party loyal to him wins power. If the Democrat Party of the current prime minister, Abhisit Vejjajiva, manages to win enough seats to form another coalition, the "red shirt" movement demanding change may resort once more to mass street protests. The risks are heightened by the poor health of 83-year-old King Bhumibol Adulyadej. Secret U.S. embassy cables released by WikiLeaks have underlined concerns the succession to Crown Prince Maha Vajiralongkorn will be a tense time with high potential for unrest and upheaval. [ID:nSGE6BG01R]

-- In Indonesia, President Susilo Bambang Yudhoyono has disappointed many with his failure to decisively promote economic reforms and crack down firmly on corruption. For now, investors see Indonesia's bullish domestic growth story as too good to miss despite the political risk. But a change in sentiment could hit Jakarta markets hard. [ID:nL3E6NG09T]

-- In Malaysia, the opposition is losing ground and that may embolden Prime Minister Najib Razak to hold early elections in 2011. But a verdict in the sodomy trial of opposition leader Anwar Ibrahim may widen divisions. [ID:nSGE6AE0TW]

-- Early optimism sparked by the election of Philippine President Benigno Aquino is fading. He has yet to show he can challenge entrenched vested interests and crack down on corruption to tackle the fiscal deficit. [ID:nSGE6AF0GD]

Blogged with the Flock Browser