INDUSTRY BULLETIN: Avalon comments on China abolishing the rare earth export quota system and implementing a new export license process

January 7, 2014

In our ongoing efforts to provide you with broader communications and industry information, Avalon Rare Metals Inc. (“Avalon”) is pleased to issue this Industry Bulletin, which reports on the recent announcement that China will replace export quotas with an export license process as a reaction to the WTO ruling. (See Avalon Industry Bulletin of April 7, 2014 at www.avalonraremetals.com/news_media/bulletins/index.php?&content_id=389).

According to Bloomberg and the Japan Times, China’s Ministry of Commerce (“MOFCOM”) issued a statement on December 31, 2014 establishing a system of export permits (or licenses) for rare earths while also abolishing the quota system.

This announcement essentially removes the rare earth export quota system which the WTO ruled violated international trade rules, and replaces it with an export licensing process under which agreements between Chinese sellers of rare earths (also tungsten and molybdenum) and foreign buyers require an export license in order for a transaction to be completed. Several industry analysts have observed that this will allow China to maintain its control over rare earth supply chains.

Avalon’s VP of Sales and Marketing, Pierre Neatby, commented: “China has complied with parts of the WTO ruling and eliminated the export quota system. However, they have replaced the quotas with export licenses which will likely achieve the same objective. In my view, this new system will create much more uncertainty for buyers outside China as their deals will effectively be subject to approval from the Chinese government. In the past, if their supplier had quota, buyers would be reasonably assured of receiving supply. As a result of this new licensing system, and the uncertainty it will create, I would expect increasing volatility in rare earth prices.”