PP 7767/09/2010(025354)

Economic Highlights
Global
•
MARKET DATELINE

29 September 2010

1 China Bans Rare-Earth Exports To Japan?

2 US Consumer Confidence Fell And House Prices In Major

Cities Moderated Yoy

3 Japanese Yen Reached The Strongest Since Intervention

Tracking The World Economy...

Today’s Highlight

China Bans Rare-Earth Exports To Japan?

At the height of the fishing-boat squabble, Japanese Economy Minister said that China’s “de facto” ban on exports of rare
earths to Japan may have a big impact on the country’s economy.

China’s has denied of imposing such a ban. China Rare Earth Holdings Ltd., which exports 30% of its products to Japan,
however, said that its exports to Japan were halted since last week after a local branch of the Chinese trade ministry
stopped issuing licences, citing system failure. The company’s exports to Europe and the US, on the other hand, are
unaffected.

Rare earths are a group of 17 metals used in weapons, hybrid vehicles and laptop computers. They are important to
Japanese companies as many of them are looking to get into advanced environmental technology like next generation
batteries and electrical cars for growth. Global production is estimated at 150,000 tonnes this year or about 60 times
the production of gold. About 95% of it is produced in China, as many mines elsewhere were forced to shut down when
China cut prices in the 1990s. However, over the past few years, China has restricted exports to prioritise supplies for
domestic use. Although companies in the US, Canada and Australia are scrambling to reopen some mines, their output
is unlikely to be widely available for a few years. China has 57% of the world’s rare earth deposits.

The likelihood of a sustained or extensive embargo is low, as the inter linkage of supply chains and trade between China
and Japan would result in effects damaging to both. China’s rare earth policy, however, has strained trade relations with
countries including the US and Japan. The US has asked business groups and unions to provide evidence that China
is hoarding rare earths for a case that may be filed at the World Trade Organisation.

Elsewhere, China’s commerce ministry announced on 26 September that it would impose import tariffs on US poultry of
up to 105.4%, as US was exporting chicken parts for less than it cost to produce them, pointing to a rise in trade tension.
The Ministry started the investigation on antidumping of poultry by the US less than two days after the US imposed steep
tariffs on imports of China’s tyres a year ago.

The US Economy

Consumer Confidence Fell In September

◆ The Conference Board’s consumer confidence index fell to 48.5 in September, from 53.2 in August and a
high of 62.7 in May. This was the lowest level in seven months, indicating that consumers have become more

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

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 29 September 2010

cautious due to concerns over job prospects and wages. More consumers believed that business conditions had
turned bad and jobs were harder to come by. As it stands, although non-farm payrolls in the private sector are
still rising, the pace has slowed down somewhat in recent months, as businesses turned cautious in recruitment.
Over the next six months, consumers’ future expectation index fell to 65.4 in September, from 72.0 in
August and a high of 84.6 in May, suggesting that consumers are becoming less upbeat about the future. This
is because more consumers expect business conditions to deteriorate and fewer jobs are available. As a result,
fewer consumers expect their income to increase. Consequently, fewer consumers indicated that they plan to buy
home within the next six months. However, more consumers plan to buy major appliances. As a whole, the
readings suggest that consumer spending will likely moderate but remain resilient in the months ahead.

House Prices In Major Cities Moderated Yoy In July

◆ House prices in 20 US metropolitan areas grew at a more moderate pace of 3.2% yoy in July,
compared with +4.2% in June and a high of +4.6% in May, according to S&P/Case-Shiller. This was the second
straight month of easing, as the end of a government tax incentive hurt sales. Also, prices were further dragged
down by high unemployment rate of close to a 26-year high and mounting foreclosures. As a result, both new
and existing home sales have seen renewed weakness lately. Mom, house prices fell by seasonally adjusted 0.1%
in August, compared with +0.2% in July. This was the first decline in four months, pointing to a weakness in home
prices in the country.

Asian Economies

Japanese Yen Reached The Strongest Since Intervention

◆ The yen reached the strongest level versus the US dollar since the Bank of Japan intervened on 15
September to weaken the currency, as the US is moving closer to implement new round of quantitative easing
that would erode the value of the US dollar. The yen strengthened by 0.4% to ¥83.94/US$ as of 4:05 p.m. in
New York, from ¥84.29/US$. It reached ¥83.69/US$, the highest level since 15 September, when it also touched
a 15-year low of ¥82.88/US$. The surge in yen coupled with slowing global economic growth is likely to hurt
Japan’s exports, which slowed down to 15.8% yoy in August, the slowest growth since December 2009.

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