The Rare Earth Drama Continues

By Michael Montgomery—Exclusive to Rare Earth Investing News

The rare earth saga continues, and will continue for quite sometime. This drama has been building for quite sometime, ever since China reduced export quotas for the metals earlier this year. Then came the dramatic situation in Japan over a Chinese fishing boat captain that collided with Japanese Coast Guard boats spawning a trade dispute where shipments of rare earth elements (REE’s) to Japan were halted. Chinese officials deny that the REE shipments were stopped due to the political dispute, and that the shipments were held up due to issues with customs.

However, shipments still remain disrupted, and Japan is hinting about a WTO trade dispute. A WTO trade dispute is also being threatened by the US over rare earth ‘hoarding.’ China has stated that the reduction of exports and mining is due to environmental concerns; coincidentally enough is the only legally acceptable excuse under WTO rules.

World famous economist and New York Times columnist, Mr. Krugman, recently weighed in on the issue. He stated that “I find this story deeply disturbing, both for what it says about China and what it says about us… U.S. policy makers, who did nothing while an unreliable regime acquired a stranglehold on key materials. On the other side, the incident shows a Chinese government that is dangerously trigger-happy, willing to wage economic warfare on the slightest provocation… Chinese officials have not improved matters by insulting our intelligence, claiming that there was no official embargo”. Krugman goes on to state how the world needs to create new sources for the materials, and to be weary of China, an economic superpower that has yet to act like one, showing patience and reluctance to enter into ‘economic warfare.’

This comes on the heels of the US House of Representatives passing two laws. First was the “Rare Earths and Critical Materials Revitalization Act of 2010.” As well as a law that passed the House of Representatives allowing the Obama administration to retaliate against the Chinese manipulating their currency. The exchange rate issue is something that Krugman pointed to in explain how China became so dominant over the REE market, by keeping the currency undervalued the Chinese could exploit low wages and processing costs. Both have yet to pass through the Senate or the past the desk of President Obama.

The economic warfare aspect may become more of a reality as the Japanese, and the US, as well as other nations, threaten trade disputes and sanctions against China. If China decides to keep even more REE’s for their own domestic consumption, or halt shipments all together the price for REE’s would explode.

On top of these issues, Chinese Commerce officials recently came out with troubling news. “China’s medium and heavy rare earths reserves may last 15 years to 20 years at the current rate of production, possibly requiring imports,” reported Paul Tighe, for Bloomberg. There was also a report that Chinese officials will “further reduce quotas for rare earth exports by 30 percent at most next year,” reported China Daily.

All of these factors show the need for western countries and companies to invest, explore, and mine new deposits of rare earths. The high tech industries that are fueling economic growth and sustainable energy industries that are vital for the growing world are dependent on secure sources of rare earth elements.

Rare Earth Mining News

The passage of the “Rare Earth and Critical Materials Act” in the US may help domestic mining companies find much need funding for rare earth projects. The bill allows the Secretary of Energy to make loan for rare earth projects including mining and processing operations, within 5 years of the passing of the act. Many hopeful domestic producers may be helped by this.

Rare earth companies with mines in the US have seen their shares rise early this week. Rare Earth Resources (AMEX:REE)(TSXV:RES) shares rose 28 percent on Monday alone and 320 percent in the past 90 days. And, Molycorp (NYSE: MCP) shares rose 11 percent with the buzz about recent events in the rare earth market.

With help from Assistant Editor Vivien Diniz