Uh-oh. China is doubling its export quota for rare earth minerals in the second half of 2011 to 15,738 metric tons. Maybe Molycorp (NYSE: MCP) and Lynas Corp. should be worried about China flooding the market right before they start production? Or maybe there's more to this story than headlines suggests.
The export quota for 2011 is basically flat, with 2010 at 30,184 metric tons for the full year. And with China cracking down on illegal exports, they may actually be down for the year. The European Union is also complaining that by adding products to the quota, China was actually lowering exports instead of raising them.
All of this comes less than two weeks after the World Trade Organization ruled that the export limits in place were in violation of international trade rules. And it's no surprise that China doesn't really care what the WTO has to say.
As companies like Molycorp, Rare Element Resources (AMEX: REE), and Avalon (AMEX: AVL) build production, rare-earth minerals investors are keeping a close eye on what China does.
Foolish bottom line
This shouldn't have a big effect on prices going forward, but the WTO's response to the move will be interesting to watch. As rare earth mineral prices have skyrocketed, countries around the globe have been raising concerns about China's control over the market.
If China is able to keep export quotas low, that will be good for new producers entering the market, but there's always the risk the WTO will be successful in getting China to expand exports. Right now it doesn't look like the market thinks that will happen.
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