BEIJING, June 22 -- China's tougher measures to crack down on illegal mining of rare earth may not have instant results, given the scattered distribution of the minerals across the south and resistance from local interest groups, industry experts said.
But the situation will gradually ease when industry integration, driven by the central government, helps to stabilize and buoy rare earth prices in the long run.
Importation figures revealed by the major exporters of China's rare earth minerals, such as the United States, Japan, and South Korea, have more than doubled China's export quota over the past years, indicating rampant and illegal exploration is taking place in the domestic market, said Sun Fan, an analyst at GoldState Securities Inc.
Highly valuable commodities, rare earth minerals are utilized in industries from green technologies to defense.
China in March set the nation's export quota for rare earth at 5,978 tons in 2010.
"We launched our six-month clampdown on unlawful mining in early June, which is the toughest since 2005," said an official from a local administration bureau on mineral resources in Jiangxi province's Ganzhou city, which holds the country's second-largest reserve of these valuable elements after Inner Mongolia's Baotou.
He added that the illegal exploration has been effectively contained in the city over the past four years. "We have spotted large-scale illegal cases with this year's supervision," he said.
Ganzhou's move is in accordance with the central government's push in May to start a half-year campaign to eliminate unlicensed mining of the strategic minerals, which are widely used in high-tech products such as missiles, smart phones and hybrid automobiles.
"We doubt the blanket crackdown on the illegal exploration will be very effective in the short term," said Zhu Lida, a non-ferrous analyst at Northeast Securities, pointing to the ease of mining the minerals and the scattered distribution of these elements across southern China.
"Such exploration doesn't need a large amount of cash in hand and no complicated technologies are required, therefore, attracting plenty of illegal private entrepreneurs into the market," Zhu said.
China is the world's largest supplier of the mineral elements, accounting for more than 95 percent of the total.
The country has stopped issuing new licenses for domestic exploration of the minerals until June 30, 2011 to safeguard against over depletion, while the export quota of rare earth minerals has also been reduced.
Guangdong and Jiangxi provinces, the major powerhouses for the more valuable heavy rare earth elements, are the areas with the most rampant illegal exploration in China due to resistance from local interest groups, analysts said.
"It's very difficult to get rid of such activities if there remains a string of interest behind the industry," they said.
According to National Business Daily, the approved mining quota for rare earth oxides in Guangdong, for instance, is around 2,000 tons.
"Real production is more than 10 times that figure," Northeast's Zhu said.
But the government's strong determination to rein in the industry will finally benefit mineral prices, which have been highly undervalued for a long time, said GoldState's Sun.