SHANGHAI: Share prices of rare earth mineral and tungsten producers soared sharply on Tuesday after the government said it had stopped accepting applications for new mines in order to curb depletion of the valuable commodity.
The rare earth sector scored broad gains on Tuesday and ended up 1.26 percent, as 22 of the 26 stocks rose sharply.
Shares of Inner Mongolia Baotou Steel Rare-Earth Hi-tech Co, the rare earth unit of Baotou Iron & Steel Group, rose nearly 3.83 percent to 24.75 yuan ($3.63) on Tuesday after hitting an opening high of 25.3 yuan.
Xiamen Tungsten Co, gained 2.4 percent to close at 16.2 yuan. Beijing Zhong Ke San Huan High-Tech Co, the Shenzhen-listed manufacturer of rare earth permanent magnets, ended up 5.91 percent.
According to a notice released by Ministry of Land and Resources on Monday, the production quota for rare earth minerals has been capped at 89,200 tons this year compared with 82,320 tons last year. The quota for tungsten concentrates and antimony ores has been set at 80,000 tons and 100,000 tons compared with 68,555 tons and 90,180 tons for 2009.
China wants to reduce quotas for these valuable minerals to boost prices and prevent ore depletion. It has now decided to stop issuing exploration licenses for the three ores till June 2011.
"The central government has controlled the consumption of these minerals, particularly for low value-added products, since 2007 for strategic reasons, as the commodity may get devalued in the long term due to oversupply," said Li Yongsheng, a non-ferrous analyst with Xiangcai Securities in Shanghai.
According to Li, China's consumption of rare earth minerals was 72,600 tons in 2007 and 67,700 tons in 2008. He expects the nation to consume around 72,000 tons of rare earth minerals this year.
China supplies over 90 percent of the rare earth minerals that are widely used to make mobile phone batteries, missiles, and aviation engines. The nation had envisaged the setting up of an OPEC-like price cartel to control the flow of the commodity. The Ministry of Commerce in December set the 2010 export quota for the 22 key firms at 16,304 tons.
"The country's stringent control on such minerals signals a possible integration among State-owned companies to boost prices and save exploration costs," said Zhang Xiang, an analyst with Guodu Securities.
However, some analysts said the share price surge would be a short-lived phenomenon considering the poor fundamentals of many of the firms and the fragile pickup in global demand.
The debt-laden Baotou Steel Rare-Earth has projected a second consecutive net profit decline for 2009 as global demand dipped. It posted a net profit of 169 million yuan in 2008.
