By Sreekumar Raghavan
Three years ago, I interviewed David Hodge, President of Commerce Resource Group, a junior miner in rare earths space, ever since I have seen the interest in rare earths spreading rapidly across the globe with China threatening supplies.
This is also evident from several investment advisors who recommend investing in rare earth stocks. The latest one from Absolute Wealth Newsletter says rare earth metals demand is expected to outstrip the supply that is available by 30-50,000 tons in 2012, and increase the value of rare earth mining companies stocks. It said, a shortage of these rare earth metals could result in a decline in production of products and devices, which include military equipment, TV’s, mobile-phones, and wind turbines that all have components made with rare earth metals.
It could be true that there will always be demand for rare earths, but the market will find out means to overcome the crisis either by way of technology infusion or finding newer supplies of the material.
But before we rush into investing in rare earth stocks or getting gloomy over probable rise in electronic, digital devices and automobiles prices, here are some interesting developments worth pondering about:-
-Japanese researchers claim that there are over 100 bn metric tons of rare-earth metals at the bottom of the pacific ocean. According to Jim Royal in Motley Fool, it would be bad news for several rare earth stocks.
- Toyota is developing technologies that could side-strip the demand for rare earths all together. It would develop and bring to market hybrid and electric vehicles that don’t require expensive rare earths. This is again bad news for rare earths industry in the long run.
-Much of the hype in the past two years has been created following China imposing export quotas in 2010. The nation accounts for close to 95% of global supplies. China now says it exported 14, 750 tons in the first 11 months of 2011, accounting for 49% of total export quotas, according to China’s Ministry of Commerce. Several companies are still unable to meet the strict environmental protection guidelines to become eligible for exports.
-China has set the export quota for 2012 at the same levels as in 2011 in order to meet international demand and keep rare earth supplies stable. Quota for 2010 was 30,258 tons, in 2011 ,30184 tons.
-China is under pressure from international community for controlling rare earth exports.
-Global demand has slowed down on financial crisis and prices of China rare earths have fallen from the height of $193.21 in 2011 to $103.76 now, almost 50% drop in prices.
-China’s Premier Wen Jiaboa told recently that the nation can afford to meet 90% of global demand with less than 50% of world reserves.Wen said China's previous lack of environmental protection and sustainable development resulted in the excessive exploitation of rare earth metals, which were then sold for low prices.
- In a Market Watch report it was pointed out that rare earth companies have been reporting estimates of deposits that don’t seem to be reliable. Research at the Arora Report shows that demand for rare earth minerals may increase by about 50% to year 2020, but the supply may increase by 500% if present day prices persist. With this kind of imbalance, prices of rare earths are bound to fall, according to Nigam Arora.
- Nigam Arora further writes, according to the ZYX Change Methodmost deposits will never be mined and stocks of rare earth companies will fall dramatically. Investors can generate handsome profits by short selling rare earth stocks. Since these stocks are very volatile and are often hyped, investors are well advised to use a proven method that has a good track record of making money on miners under artificial hype to manage their entries, stops and exits.
