China preparing to cancel tariffs on rare earth exports

"I don't think the outlook is good for their WTO appeal and they realise it," said Amsterdam-based consultant Ryan Castilloux, founding director of Adamas Intelligence.

"So I think they're looking at what they need to do in the long-term to take what was once an export tariff and turn it into a resource tax so the net result is positive."

The ministries involved, including the Ministry of Industry and Information Technology and the Ministry of Commerce, were not available to comment. The Association of China Rare Earth Industry also did not respond to requests for comment.

Alternative technologies

Michael Silver, chief executive of American Elements, which sources rare earth supplies from China, said the policy shift would be a "significant step in the right direction".

"China has every right to charge whatever the market will bear for rare earths," he said. "But they should not use them to advantage their own end-product producers or extort foreign companies into manufacturing in their nation."

He said China's curbs were counterproductive and encouraged overseas consumers to pursue alternative technologies.

"My argument to China is why would you want the brightest minds on the planet to devote their careers to researching ways not to use a material you have control over forever?" he said.

As well as export restrictions, China's campaign to "rectify" the sector also included a strict domestic output quota as well as efforts to smash an illegal supply chain in which small-scale village producers mined large amounts of rare earth that would then be smuggled out of the country.

To strengthen its control over the sector, the government also sought to consolidate production and processing in the hands of a small number of large and mostly state-owned firms.

It has also tried to improve its pricing power by establishing trading exchanges, while an official with the Shanghai Futures Exchange said at a conference last month that China was mulling the launch of rare earth futures trading.

WTO finds against China in rare earth dispute	China to strengthen rare earth industry management