Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Ethereum EIP 1559 and Raven Coin - 21st Apr 21
Gold, USDX: The Board is Set, the Pieces are Moving - 21st Apr 21
World Economies Need to Find a Lot More COPPER! - 21st Apr 21
DogeCoin CRASH! Time to Start Mining BOODGIE Coin! Crypto Mania 2021 - 21st Apr 21
Pausing Stocks and Gold Fireworks - 21st Apr 21
Precious Metals and Miners Start of New Longer-Term Bullish Trend - P2 - 21st Apr 21
Looking For A Mortgage Broker? Here Is How To Hire One - 21st Apr 21
Amazon AMZN Stock PRIMEDAY SALE! Trend Analysis - 20th Apr 21
Stock Market Sentiment Speaks: You May Not Believe My 2021 Targets - 20th Apr 21
Stock Market Phase Two Projection - 20th Apr 21
Are Precious Metals & Miners Starting A New Longer-Term Bullish Trend? - 20th Apr 21
Inflation: First the Gain, Then the Pain… - 20th Apr 21
8 Stock Market Indicators in 1: Here's the Message of the Panic/Euphoria Model - 19th Apr 21
Gold - You Can Win a Battle, but Still Lose the War - 19th Apr 21
Will Interest Rates Rally Further Push Gold Price Down? - 19th Apr 21
Gold Fireworks Doubt the Official Inflation Story - 19th Apr 21
YuanPay Team Discuss The Process Of Crypto Diversification - 19th Apr 21
Central Banks May Ramp Up Gold Buying - 18th Apr 21
How to Get Rid of Driveway Weeds With Just WATER! 6 Months later NO Weeds, Ultimate Killer! - 18th Apr 21
State of the European Markets - DAX, FTSE, CAC, AEX, SMI, IBEX 35, S&P/MIB, Euro Stoxx 50, RTS - 18th Apr 21
Einvestment Fund: What You Need To Know About Investments - 18th Apr 21
Google Alphabet (GOOG) AI Deep Mind Stock Trend Analysis - 17th Apr 21
Stocks and Bonds Inflationary Slingshot - 17th Apr 21
Best Smartphone Selfie Stick Tripod Review by ATUMTEK Works with Samsung Galaxy and Iphone - 17th Apr 21
How to Give Budgie's First Bath | Easy Budgie Bathing and Water Training with Lettuce - 17th Apr 21
Record-breaking Decrease in New Passenger Vehicle Sale in Europe - 17th Apr 21
US Stocks Climb A “Wall Of Worry” To New Highs - 16th Apr 21
Gold’s Singular Role - 16th Apr 21
See what Anatomy of a Bursting Market Bubble looks like - 16th Apr 21
Many Stock Market Sectors Are Primed For Another Breakout Rally – Are You? - 16th Apr 21
What Skyrocketing US Home Prices Say About Inflation - 16th Apr 21
Still a Bullish Fever in Stocks? - 16th Apr 21
Trying to Buy Coinbase Stock on IPO Day - Institutional Investors Freeze out Retail Investors - 15th Apr 21
Stocks or Gold – Which Is in the Catbird Seat? - 15th Apr 21
Time For A Stock Market Melt-Up - 15th Apr 21
Stocks Bull Market Progression Now Shows Base Metal Strength - 15th Apr 21
AI Tech Stocks Buy Ratings, Levels and Valuations - 14th Apr 21
Easy 10% to 15% Overclock for 5600x, 5900x, 5950x Using AMD Ryzen Master Precision Boost Overdrive - 14th Apr 21
The Current Cannabis Sector Rally Is Pointing To Another Breakout - 14th Apr 21
U.S. Dollar Junk Bond Market The Easiest Money in History - 14th Apr 21
The SPY Is Nearing Resistance @ $410… What Is Next? - 14th Apr 21
The Curious Stock Market Staircase Rally - 14th Apr 21
Stocks are Heating Up - 14th Apr 21
Two Methods in Calculating For R&D Tax Credits - 14th Apr 21
Stock Market Minor Correction Due - 13th Apr 21
How to Feed Budgies Cucumbers - Best Vegetables Feeding for the First Time, Parakeet Care UK - 13th Apr 21
Biggest Inflation Threat in 40 Years Looms over Markets - 13th Apr 21
How to Get Rich with the Pareto Distribution - Tesco Example - 13th Apr 21
Litecoin and Bitcoin-Which Is Better? - 13th Apr 21
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Rare Earths Investing Update

Commodities / Metals & Mining Feb 25, 2012 - 03:38 AM GMT

By: Jeff_Clark

Commodities

Best Financial Markets Analysis ArticleBy Jeff Clark, Casey Research We've received a number of inquiries from Casey Research subscribers about our opinion on the current rare earth metals market. We have covered this topic previously, but this article, we'll take a fresh look.

As a matter of a recap, rare earth elements (or REEs) is a generic name for 17 metals widely used mostly in high-technology devices, such as mobile phones, laptops, flat screen televisions, hybrid car batteries, lasers, optics, and military equipment. New uses for these metals are being constantly found, but more on that later.


Despite the name, these metals are not actually rare in nature. The name refers to the fact that they are rarely found in a pure form and are usually mixed with other minerals, which makes extraction complicated and costly. Further, mining and refining of rare earth metals is environmentally challenging, due to acidic and radioactive byproducts. This is why most countries don't produce REEs. This has led to a reduction in reserves of these metals and left the bulk of production to less environmentally conscious companies and jurisdictions. China has expanded its production and, at least on the surface, looks to have a near monopoly on the industry. According to the US Geological Survey, China possesses one-third of the world's reserves and produces 97% of global supply.

None of this was a problem until China started introducing trade limits. Dramatic changes took place in 2010, when Beijing officially decided to cut export quotas on rare earths by 72%, to 35,000 tonnes, far below the levels of world consumption. Quotas were further reduced by 35% in the first half of 2011. Steep export taxes were applied, too. As a result, REE prices skyrocketed.

Consumers lost some of their appetite for the now-expensive metals, and most REEs dropped in price – some of them by as much as two-thirds. Prices remain above historical norms, however, and were so lofty that exporters used only half of the Chinese quota allocations last year.

It's hard to miss the steep rise in prices from mid-2010 to April 2011. Should we expect similar price spikes in the future? And what's the long-term trend?

Analysts have opinions supporting both bullish and bearish outlooks. Some think another price rally is possible, since the industries using REEs are on the rise and also because there are, in the majority of cases, no substitutes for REEs. Neither is there an immediate solution to the market conditions caused by China's supply policy. Others believe that the REE market will face a surplus in 2012 and that prices will thus correct further.

The REE market is precarious because supply is artificially restricted. This imbalance can't be sustained for long, though, because industries and companies that use REEs need to have predictable and stable long-term supplies of the metals and hopefully at reasonable prices. It thus seems reasonable to assume that the market will find ways to decrease the effects of China's policy.

In fact, there are some adjustments already under way in this market…

New Mines Outside China

Given the high REE prices, some previously producing REE mines are going back into production. Molycorp Minerals, for instance, is reopening its Mountain Pass Mine, which was shut down in 2002 because of competition from China and environmental concerns. The company was recently permitted to resume its operation and is expected to start producing this year. Another recent example is Australian miner Lynas, which obtained a license to begin processing rare earths at a new facility it's putting the finishing touches on. The company says by the middle of the year the plant will be able to process 11,000 tonnes of rare earths per year (about one-third of current world demand excluding China), and will later double its capacity.

Recycling

Another solution to cope with supply shortages is recycling. Japanese companies have been studying the technology and costs of reusing neodymium and dysprosium from washing machines and air conditioners. Mitsubishi Electric has made some progress by creating a device that extracts rare earth elements from used household air conditioners. The machine "will be installed at a factory run by Green Cycle Systems Corp., a Mitsubishi Electric subsidiary in the city of Chiba and begin operations in April." Another Japanese company, Shin-Etsu Chemical, announced that it will spend 2 billion yen ($US25.8 million) to build a plant in Vietnam to process REEs from hybrid car motors and other products. The factory is expected to open in February 2013 and will produce 1,000 tonnes of rare earths per year.

If recycling technologies can manage to be cost effective, they will become another source of REE supply, albeit not as significant as new mine production.

Replacement

Another way for companies to be less dependent on China's policy decisions is through new technology that uses less REEs. A widely quoted example is a company called Showa Denko, which managed to decrease its consumption of cerium oxide by half in 2011 by reusing the material up to five times, among other technological improvements. Other breakthroughs are likely to follow.

Relocation

China officially mined 93,800 tonnes of REEs in 2011, only 5% more than in the previous year. Harsh export quotas and modest growth in mine supply are considered by some analysts as the incentive "to give priority of supply to domestic consumers and encourage foreign customers, mostly in high-tech strategic sectors, to move their operations to China." Whether or not they like it, the state of the current REE market may force some companies to relocate their production facilities to China. Japanese companies Showa Denko and Santoku, among others, have already done so.

Conclusion

It's clear that REEs have investment merit. These elements are crucial and irreplaceable for a lot of consumer uses.

However, the REE market is small, opaque, volatile, illiquid, and subject to manipulation. It's further complicated by a lack of reliable data, making it difficult to forecast and risky to play. It's also worth remembering that REEs are industrial metals, which are usually weak when the economy enters a recession – an outcome we think is more likely than not.

Buyer beware.

[How can an investor know when the time is right to get into a volatile sector like REEs – or out of an overblown sector? You don't need to become an expert in all the areas you invest in; you just need to identify and follow the resource titans who generate the most wins.]

© 2012 Copyright Casey Research - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules