Government says critical material stockpiles undesirable

LONDON Wed Sep 14, 2011 1:31pm BST

A worker at the Jinyuan Company's smelting workshop for rare earth metals, walks through thick smoke billowing from factories next door near the town of Damao, in China's Inner Mongolia Autonomous Region October 31, 2010. REUTERS/David Gray

A worker at the Jinyuan Company's smelting workshop for rare earth metals, walks through thick smoke billowing from factories next door near the town of Damao, in China's Inner Mongolia Autonomous Region October 31, 2010.

Credit: Reuters/David Gray

Related Topics

LONDON (Reuters) - The government said the stockpiling of strategic and rare earth metals is undesirable and incompatible with its free-market approach to economic policy.

In a letter to the Science and Technology Committee published on Wednesday, the government said: "The (European Union) Commission needs to remain vigilant to avoid protectionist responses, such as state or EU-led stockpiling, to the unilateral export controls of some exporter countries."

The UK stance contrasts with that of the EU, which is stockpiling rare earth minerals, which are vital for many high-technology and defence industries, to reduce its dependence on dominant producer China, according to an EU spokesman earlier this month.

China produces more than 95 percent of global rare earth metals, and its efforts to bring the sector under greater control, citing resource depletion and environmental degradation, have alarmed its overseas customers.

Tensions have risen since Chinese state media said last week the country would halt production of rare earths at three major mines.

Demand for rare earths -- a group of 17 elements used to produce catalytic converters, permanent magnets and battery cells -- is expected to double in the next five years, but Chinese output growth is likely to be much slower, and the United States and Japan are considering taking legal action.

China in August vowed to appeal a recent World Trade Organization ruling against its raw materials export policy, a case that could threaten Beijing's handling of rare earths.

"The (UK) government will continue to work at EU and international level to support efforts to liberalise trade in such resources," the letter published on its website said.

"The government also recognises and encourages the prudent management of resources by businesses as part of a coherent approach to supply chain management."

The government also approved of a database that would seek to highlight which resources are most important based on risks around supply, demand and environmental impact.

"A shared database or similar information tool could be a useful approach for businesses and government to develop an understanding and awareness of the risks that UK businesses may face," the statement said.

(Reporting by Pratima Desai and Sylvia Antonioli, editing by Jane Baird)

FILED UNDER: