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back to article El Reg man: Too bad, China - I was RIGHT about hoarding rare earths

So this is where El Reg's rare earths spiv gets to do the victory dance. That would be me then, bopping around the dance floor as only a middle aged white man can. For I've been saying for years now that this "China will control all the rare earths" thing is nonsense and so it has turned out to be: nonsense. Not that it hasn't …

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Refusal is a perfectly valid solution.

amanfromMars 1, which cans are the Amish kicking down the road? Which responsibilities do you allege that they duck by abstaining from 20th century and 21st century information technology? (How can they abdicate from a position which they have never held?)

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Stop

Tim, you assume perfect competition.

However there are the little matter of patents (and patent abuse) which can stifle competition for up to a period of 20 years. This is certainly the case in the software industry where trivial patents are being lodged and passed even when there is plenty of evidence of prior art or obviousness for the sole purpose of hindering competition.

20 year patents do have a place when the invention is innovative, novel and required huge amounts of R & D spend. I can sympathise with the pharmaceutical industry as regards patents where the investment is huge and late stage failures common. It costs about £1bn (and 10 years worth of testing) to bring a test tube invention to market giving about 10 years exclusivity, if you are lucky.. However a bit of code that can be cobbled together on a Friday afternoon by an intern that was probably lifted from someone else's work then given a 20 year patent beggars belief. As for rounded corners, fuck off Apple.

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Re: Tim, you assume perfect competition.

I have two words for you: Eminent domain.

If something is important enough for national security, it will be f off, litigious corporation of choice. It is amusing that one place that did not happen was Nazi Germany - because, being Fascist, politicians were often in the pocket of the corporations.

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eminent domain in Nazi Germany

ribosome, I suggest that you look into the non-amusing results of the Verordnung zur Ausschaltung der Juden aus dem deutschen Wirtschaftsleben before stating that eminent domain was not used to expropriate corporations in Nazi Germany.

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Anonymous Coward

Self vs Self

Without quoting pendulum, depending upon your swing of musical taste or clock... We all have our personal preferences...

I've never heard of a Government attacking its own "monopoly"? After all, they do legislate themselves in ways?

Or heard of the Ministry of Justice taking itself on.... because that would be uneconomical regardless of whether it won or lost!?

Imagine if the regulations were communist though? Would the UK be significantly different? Would law be any less etchy sketchy?

Both of these powers mixed together (legislation and the 51% monopoly take-over) would be a recipe for long term despair for the entire population!!!

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a government attacking its own “monopoly”

The US Congress frequently takes on both the US Postal Service and Amtrak, two different “own ‘monopolies’” for which it legislates.

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regulation to increase contestibility

one valuable thing a regulator can do is make it easier for the competition to keep the dominant player honest.

e.g. number portability makes it easier to switch phone supplier, and helps to stop any player 'rooking' the consumer too much

a similar approach might be taken for someone like facebook: mandate data-portability and some level of interoperability, and then let Facebook keep users by virtue of the deal they offer, rather than the fact that is is hard/impossible to switch.

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"Free market" is not a guaranteed fix

There are places where so-called network effects can help keep a monopolist entrenched indefinitely, or perhaps for a very long time. For example, Google can use information obtained from its large number of search users to improve its results, or to more nearly figure out their advertising preferences (their true customers). A new entry to the market will lack this information because they lack the huge installed base of users, and their search will be less good and they will be less efficient at placing ads. This is not unlike needing to buy a copy of Microsoft Office to interoperate with other Microsoft Office users, even though you would never use it yourself.

MS Office is an interesting case; there's Open Office, but that took quite a long time, is still only mostly-compatible, and isn't exactly "making money". (Yes, I know it is more complex than that; I worked for Sun when it was their baby, and part of the goal was to use this as part of a strategy to swing customers in Brazil/Russia/India/China towards open and/or standard software and interfaces. Notice that Sun did not make money when they needed to.) The point is, one cannot just wave the "free market" wand at all problems and watch them disappear.

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Monopoly on cheap?

The author didn't state something here...

Reuters "Lanthanum, used in rechargeable batteries for hybrid autos and in night-vision goggles, rocketed 26-fold from $5.15 a kg in January 2010 to a peak of $140 in June 2011. Although it has slid to $20.50, the price is still well above earlier lows."

Even though they don't have a monopoly on light rares, they managed to make 28x what they were for a while, and the market is still 4x over what it was. Assuming the base mining costs are the same, they have compressed many years of profits in to one. Also, it is very likely the mines from the Americas are going to produce a more expensive product simply because of environmental regulations. What may cause the bigger problem is all the new mines coming on line and crashing the prices, then going out of business, meanwhile the rare earth mines in China fund themselves off the heavy rares they produce.

"Analyst Edward Otto at Cormark Securities forecasts the long-term price of cerium oxide to settle eventually at 50 cents a kg and lanthanum oxide at $1.00 per kg, down from $20.50/kg currently."

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Re: Monopoly on cheap?

They compressed years of profit into one ONLY if you take for granted that the 2010 price was the correct one. Instead of asking why is the price now 4x higher than it was three years ago, ask why the price was so low three years ago?

The answer is, because China's lack of regulation allowed extraction methods horrible for the environment, and the workers are paid very little (they probably make the guys assembling iPhones for Foxconn look like millionaires by comparison)

So yes, China did compress many years of profit into one - i.e. it would have taken them many years to make that much profit at the rock bottom prices they used to be charging, and they were causing hell with the environment as a bonus. Perhaps when prices were 28x higher they considered it back pay for the years of too small profits, and the cost incurred on the environment by their mining practices.

Perhaps the Chinese government didn't do this in an attempt to monopolize the market on rare earths, knowing that this was not possible because they are smarter than Mr. Worstall gives them credit for. Rather they knew that their rare earths industry had raced to the bottom, and the only way they could get the buyers of the rare earths to bear the costs of previous environmental damage and for reducing future environmental impact was to raise prices significantly.

Enter a simple shock to the market that jolted prices upward, and even after falling were several times higher than they previously were. Now with the higher prices they can invest in less destructive methods to extract rare earths. Maybe that's why they closed the large mine, and when it reopens it will produce rare earths in a cleaner manner. Not as clean as Molycorp or other western mines to be sure, but greatly improved over the previous situation.

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Re: Monopoly on cheap?

Interesting numbers.

""Analyst Edward Otto at Cormark Securities forecasts the long-term price of cerium oxide to settle eventually at 50 cents a kg and lanthanum oxide at $1.00 per kg, down from $20.50/kg currently.""

For they're below production cost. Even for the Chinese.

Makes sense though, in a way. For in order to get the small amounts of the expensive REs in the original ore, you've got to extract the La and Ce from them. So if you want Nd for magnets then you've got to produce La and Ce as by product. You then hope to make money on the whole basket, even if you lose on some of the products.

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Facepalm

Self-defeating and strategically unwise.....

Besides the economic folly behind trying to control prices when you do not control supply, China also foolishly made itself appear unfriendly to boot. Lot's of countries with significant interests in renewable energy and consumer electronics now feel that the Chinese are borderline-hostile, and China's attempt to restrict and manipulate the rare earths markets is just one more proof point in that shift of opinion.

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Anonymous Coward

Sorry, did we put you out of business?

Did anyone notice news of rare earth mines re-opening to compete with China's higher prices? This price dip sounds very deliberate.

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Allowing the market to deal with power stations

In the article, Tim writes:

There's only one National Grid: regulate it. There are many power stations and if one tries to rook us then another will undercut it: allow the market to deal with that.

----

What you say would be true in an ideal world with true competition, where power stations were all independently owned and operated. But in the real oligopolistic world, it was too easy for a big producer like PG&E to shut down plants simply to reduce supply, resulting in price increases that far outweighed the lost revenue from the plants that were shut down. California learned this to their detriment over a decade ago after they de-regulated electricity, but after the Enron shenanigans which resulted in much higher electricity prices along with the occasional brownout or blackout, they realized the error of their ways and re-regulated, and prices went down and the grid became more stable. So much for market forces.

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Re: Allowing the market to deal with power stations

That's because California only de-regulated *half* their electricity market.

They made it open season on generation, but mandated a fixed price to the consumer.

That combined with a finite generation market and the geographic situation of a limited number of major interconnects with other states, and the fact that the newly de-regulated generators frequently sold their power to out-of-state retailers. If memory holds, at several points while California had brownouts, the balance of power on the Captain Jack interconnect flowed north, not south, for that very reason.

Which meant in mid-summer you had the ludicrous situation of power going for up to $2000 on the spot market being forced to be retailed at $0.09.

Naturally enough, as each retailer mucked up their hedging contracts, they went bust. As did two of our software customers at the time.

Off the top of my head the situation lasted a couple of years before a semblance of sanity prevailed.

If they had de-regulated both generation *and* retail at the same time, the consumer price would have spiked, industrial demand would have dropped, and most likely the state would have stepped in much sooner due to public outcry. There could also have been true competition between the players.

That being said, California has been bankrupt for how long now?

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Re: Allowing the market to deal with power stations

Right in the middle of that crisis, California turned down the opportunity to build 17 co-generation plants that my employer had won the bids on. Why? The environment! They have not built a new refinery in California since before the seventies, yet California has more automobile owners than any other state. Now they are whining about gasoline prices after inisting on unique, one-of-a-kind blends for each area of California. Can you say silly? I can.

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Re: Allowing the market to deal with power stations

Californian deregulation was badly done, I agree. One of the UK rules about it is that no one company can own enough of the power plants to become powerful enough to dictate prices.

Please note, I'm not saying there should never be any rules about these things. Only that what the rules should be depend on what sort of monopoly there is (or isn't).

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CNXTim

I have often said to anyone who will listen OR NOT, that China is NOT a very smart "country" and I hold that opinion because, unlike many other PC commentators, I have actually been there in person on many occasions purchasing Apple Juice Concentrate amongst other stuff like negotiating to install ultra secure wireless LAN's.

Personally, I find their businessmen to be collectively quite stupid.

Simply cheap and aggressive but disorganised and dumb overall.. Hence my "Great Wall of China" the dumbest ever civil engineering project and "Sun Tzu vs. Machiavelli" = No Contest syndromes ... anyhow, I enjoyed this article on Rare Earths, it made me chuckle nah - a big , hearty belly laugh actually..

Tim the 100% NON PC guy..

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Re: CNXTim & mining

I've lived in China for more than ten years and as a general rule you're right - most of them *are* quite (or indeed very) stupid. However, the thing about China is that there are lots and lots and lots of people doing business, and there's always going to be a, perhaps small, percentage who either aren't stupid or are lucky or both. Thus, due to the sheer number of people involved, even with a small percentage, that means there's a lot of very good (or lucky or both) businessmen too. And after some time this will be subjected to Darwinism and we'll have more and more Chinese who actually know what they're doing.

As for the rare earths thing, I thought it wasn't so much the mining, which is relatively easy, but the processing, which is relatively not/and or polluting. With the industrial base to process such, China's 'hold' came in this area rather than just digging the stuff out of the ground.

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Monopoly anyone ?

Tim Worstall is correct in that as soon as any monopolist starts exercising monopoly power, it is up for a challenge. In the long run the only extra margin an existing monopolist can make is that margin created by the costs of entry into a market. These can of course be huge.

A fair few years ago, I earned a degree in Economics ( I do not call myself an Economist ! ), and my final year tutor had a professional interest in Monopoly. Leaving aside the 'natural' monopolies - water, sewage, etc. - I remember him saying that he and his colleague in the field had only ever found one manufacturing monopoly. This was a tiny company somewhere that made that blue chalk that those of you with a mispent youth will recall is used for chalking snooker cues !

Dogged's remark about paying paying public sector employees a lower but tax-free salary is, I regret, in error. Public sector employees' tax affairs vary as much as any other group's, and it is fairer to pay the 'market' rate for a job and deduct tax than to pay all of them a lower but identical salary.

Chris Cosgrove

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Happy

Rare Earth monopolies breed competition

I have the privilege of being able to roam freely over the beautiful (and not so beautiful) landscapes of VietNam, and Indochina generally, and I noticed that there are teams of white boiler-suited types scouring the land in VietNam who were definitely not Vietnamese in facial characteristics.

I took a relaxing lunch-break near of of these teams and one of them men wandered across and he was able to speak passable English.

He explained, voluntarily, what they were doing. In fact, he handed me an envelope of material that detailed their endeavours.

They were a Japanese team searching the old mining tails (debris) of VietNam looking for rare earths. In fact they had found some, just south of Ha Noi, where they discovered sufficient quantities to financially justify opening a new mine.

Elsewhere in the country the finds were only sufficient to process the tailings - with success.

Unlike the Australians, the documents advised, they are moving the untreated soils, by ship, from VietNam, to Japan where they have a low-emissions refining plant.

So, Thank You, China, for hogging the market, you are creating jobs and enterprises in other countries.

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Stop

"bopping around the dance floor as only a middle aged white man can"

<shudder> That's an image that's going to be branded on my frontal lobes for a while.

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Unhappy

And now you can add the title Being Banned in PRC China for being mildly critical!

Yup,.. you're off-line in China now. I have to VPN to the reg now to get my daily dose of nerdisms. BTW,.. they're cracking down on that too. Currently they haven't gotten to block OpenWeb yet, but I wonder how much effort they'll put into that. Sigh,.. I guess I'll have to try and find myself some satellite to hook up to shortly.

You know how it goes here.. big toes,.. small dicks...

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Meh

Re: And now you can add the title Being Banned in PRC China for being mildly critical!

When I was on China on holiday I was Googling around to solve some home connectivity issues at a relatives' place.

A lot of tech articles were unaccountably blocked. And I could not used Google cache to access slow loading pages as that is blocked too.

I though to myself: Wow this must make tech work in China inefficient.

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H 4

Please stop saying rook

Thanks!

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Times are a changin'!

The state of Texas is churning out construction permits for new chemical plants hand over fist. Many here are predicting a construction boom similar to the one we had during the Ford-Carter years. Why? Because interest rates are at the lowest they have been since the 1930's. If the EPA refrains from getting involved in this boom, and it might well do so w/Obama at the helm, we are going to see an abrupt rise in wages and demand for both goods and labor. Know what that will result in? That's right, Carter Era inflation--probably worse. So far, the banks have not been lening money out because they do not see any quailified borrowers, but it is hard to say that about Big Oil and Big Chemical. In fact, they must already be lending it to those companies because the compaines are applying for construction permits.

I am retired already, so none of this actually matters to me save that runaway inflation is in the offing. My proposed cure? Purchase copper pipe. The US government has shown a nasty inclination to confiscate precious metals. They can gobble up platinum, gold and probably sllver, but they will play hob gather up all the copper.

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Happy

Re: Times are a changin'!

Any attempt by the U.S. govt to interfere with commodity prices also also doomed to backfire.

For a curious unintended-consequences take on this, have a look at:

http://www.npr.org/blogs/money/2012/09/28/161962626/the-weird-story-of-why-helium-prices-are-going-through-the-roof

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Re: Times are a changin'!

Tricky Dick (Richard Nixon) imposed wage and price controls for a while once inflation hit a scary four precent per annum. Guess what happened? No one could buy fertilizer any more. There were also other shortages and overages, but fertilizer is the one I am most familiar with because my grandad and I had just put in a new hay meadow and could not find fertilizer for it. We finally resorted to the black market paying almost twice the official price for the stuff.

I don't think that our government has learned anything from its past mistakes. Otherwise, it would not be committed to a fiat currency as I sit here writing this.

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Happy

Re: Times are a changin'!

"once inflation hit a scary four precent per annum. "

Hahahahahahahahahahahahahah.

The other great gag of the early 70s was the insanely huge OPEC price hike to (gasp) fifteen whole dollars.

BTW most people don't realise oil companies essentially operate on a cost plus basis. They don't really care how high the price goes, because their profit is on top.

In fact when prices fall they have to re-jig their spending plans, cancel Xmas parties, cut back on expensive escort services etc.

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FAIL

The author missed the point as to what it means to be a monopoly...

"Or Google and search engines: we've got two investigations going on right now about whether Google is abusing its market position - one in the US and another in the EU. But this isn't the correct question at all. Sure, they're market-dominant: but if they really try to rook their customers can someone come along and challenge them? I would argue yes they could: not that anyone's been successful particularly yet but there's no obvious legal or technical reason why someone couldn't. It would only need a change in consumer taste for a competitor to beat them."

The trouble occurs when the company who holds the monopoly abuses that power within the market or uses its dominance in one market to take over another.

This is what we saw w Microsoft, and now Google.

You can build a better mouse trap and still fail against a monopoly.

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Stop

China

It's interesting that while politicians rain hate down on China, both left and right, the companies that fund their campaigns seem to be infatuated with the country.

Whether it's Apple using a company to produce shiny screens that's known for child labour abuse or Walmart selling nothing but Chinese made goods (and for that matter paying Chinese wages), US corporations just love the place. Certainly they couldn't care less if their homeland becomes a bankrupt cesspool, with record unemployment, no health insurance and record low wages that put even Chinese goods out of the reach of its inhabitants. That Walmart employees are on food stamps due to low wages seems to be bad simply because they're getting the food stamps, rather than being bad because they're paid a wage so fucking outrageous they cannot support their families without them.

Then you have Apple cheerfully fighting the good fight by promissing to pay minimum wage to some guys and girls who will be assembling Chinese made products into Macs. Hoo-fucking-ray for them. How wonderful that they are following the HP model of being willing to pay fuck all to glorified lego builders.

The bad part is that while we can all wish that these rich gits will end up being arse-fucked by the economy when there's no one left who can actually afford the crap they're selling, the unfortunate thing is they still won't care because they'll just move their wealth to China and take what they can get from there.

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