Critical Metals

What a year for rare earths! The decrease in export quotas from China sparked a firestorm of investments, political battles and skyrocketing prices that have made rare earths one of the hottest markets in 2010. Now the Chinese have raised export tariffs for some of the most highly needed rare earths, adding more fuel to the fire.

By Michael Montgomery—Exclusive to Rare Earth Investing News

What a year for rare earth metals! Prices have skyrocketed, mining companies have been formed, political battles have been fought, and the little known metals have gone from relative obscurity to household names. The group of 17 metals are used in such a wide array of everyday products, and the appetite for them is only growing.

The main catalyst, outside of consumer demand, for the metals meteoric rise in 2010 is China’s trade policies. Export quotas for the metals were slashed for the second half of 2010, a reduction of over 70 percent, to just 7,976 tonnes for the latter half of the year. This dramatic reduction was met with cries from world leaders around the globe as protectionist, and unfair. There were even talks of starting a WTO trade dispute. Then a Chinese fishing captain was arrested by the Japanese Coast Guard in waters around a disputed island chain. That sparked an unofficial embargo of rare earth shipments headed to Japan sparked another round of fierce political battles, attention by the media, and increased investment into non-Chinese rare earth mining companies. It has been very exciting to cover these stories, and the effects they have on the market.

Will 2011 hold the same melodramatic twists? It just may be.

The increasing in tariffs and no end to sight to the low export quotas should keep prices of the metals high. The quotas for the first half of 2011 should reflect half of the entire quota for 2011, which totals 30,258 tonnes, half of that would be 15,170 tonnes. There is speculation that the quotas may be trimmed slightly this year. New data suggests that while the export quotas are firm, China may have shipped slightly more than allotted.

“China’s total export volume in the first 11 months of this year was 35,075 tonnes. Although that is more than the quota of 30,258 tonnes, it may include some shipments made early in the year and sold under the 2009 quota. The value of exports in Jan-Nov has jumped from $232.5 million last year to $630.5 million in 2010, a rise of 171 percent,” reported Tom Miles, for Reuters.

There has been a disproportionate rise is some junior mining stocks. Some of these mining firms that have yet to produce on their deposits, and may not produce for five years or more, have risen 450 percent. The desire to get in on the ground level of the “next big thing” may be driving some of these massive share increases. Many analysts agree that the consumer demand for rare earth’s is growing rapidly. “Demand for rare earths is set to more than double in less than five years, from 120,000 to 250,000 tonnes by 2015,” stated Julie Gordon, for Reuters. This steady increase in demand for the materials for consumer electronics and hybrid vehicle is not going to fade.

The use of these materials in renewable energy sources, such as wind turbines, batteries, and solar panels is only going to grow as countries are just beginning to invest heavily in these industries. Some researchers are trying to find alternatives to rare earth’s for magnets and electric motors, but these new alternatives are not going to be used in the near future.

Not all of the 17 elements will be in high demand, as some have little wide spread use. Consequentially, when looking to invest in mining companies the cautious investor should check the resource base of the most high demand elements. The most profitable, and in demand elements are mainly, in no particular order, neodymium, lanthanum, dysprosium, cerium, europium and terbium.

China Increases Export Tariffs

The Chinese government is once again going to affect the rare earth market. Chinese officials released information on export tariffs for rare earth elements. Some of the 17 elements that make up the group will not be changed; however, some of the most used elements, namely neodymium, will be increased to 25 percent. This is a significant increase over the 15 percent tariff imposed in the past. Lanthanum, and cerium, that were not taxed last year will also be moved to the 25 percent tax bracket, no reason was given for the dramatic increase for these metals.

Bloomberg reported that the price of neodymium oxide has surged more than four- fold to $88.5 a kilogram from $19.12 in 2009. Furthermore, prices of cerium oxide climbed sevenfold in the six months to October.

The increase in tariffs will cause the prices for these metals to climb even higher, which is good news for mining companies as their deposits will be seen as more profitable. However, the increase in tariffs will not be permanently adding more volatility and confusion on determining the future of this market.

The statements on the raising of rare earth tariffs, also came with a declaration that China will also lower temporary tariffs on around “600 resources-related products, basic raw materials and key parts in 2011 to boost energy-saving and environmental protection,” reported the Global Times. What resources make up this list of 600 products is unknown at this point. The reduction of taxes of some of the metals in which China wields significant power, such as molybdenum and manganese to name a few, may just affect the market more than any other factor in 2011.

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