The discovery of a massive trove of rare earth metals at the bottom of the Pacific Ocean last week triggered a fleeting hope that China's monopoly on the materials would be broken.
Unfortunately, the discovery may not have the impact many had hoped, which means prices for rare earth metals will continue to soar. That's bad news for countries like the United States and Japan, which count on the scarce materials for high-tech industries.
Developed countries require rare earths to manufacture a wide range of high-tech products, including flat-panel displays, computers, hybrid car batteries, cell phones, solar panels and some advanced weapons systems.
For instance, there are more than 50 pounds of rare earth metals under the hood of a Toyota Motor Corp. (NYSE ADR: TM) Prius. Terbium can cut the electricity demand of lights by up to 80% and fractions of dysprosium can significantly reduce the weight of magnets in electric motors.
But China, which produces 97% of the world's rare earth metals, has drastically reduced its exports over the past several years, driving prices skyward.
Citing "environmental protection," China cut its rare earth exports to just 30,259 metric tons in 2010 from 67,521 metric tons in 2005.
That has caused runaway price increases for many of the 17 metals.
Over the past year dysprosium, used in specialized magnets, shot up from $300 per kilogram to $1,900 per kilogram and even higher. Neodymium has spiked to $450 per kilogram from $45 per kilogram late last year.
The Market Vectors Rare Earth Metals ETF (NYSE: REMX) is up 7.25% year-to-date and 32% over the past 12 months, as a result.
That's why many analysts – and Western companies – breathed a sigh of relief this week when the World Trade Organization (WTO) ruled that China's strict export policies on certain raw materials such as manganese, silicon carbide and yellow phosphorus, had broken global trade rules.
Although the WTO ruling did not apply to rare earth metals, most expect China to reconsider those export policies as a result of the decision.
That ruling was followed by the deep-sea discovery, which was made by Japanese scientists who found huge deposits of rare earth metals in the Pacific.
"The deposits have a heavy concentration of rare earths. Just one square kilometer [0.4 square mile] of deposits will be able to provide one-fifth of the current global annual consumption," Yasuhiro Kato, the University of Tokyo associate professor of earth science who led the team, told Reuters.
Kato estimated the rare earth deposits he discovered equal about ten times that of known global reserves. The metals were found in 78 locations in international waters east and west of Hawaii as well as east of Tahiti.
"Sea mud can be brought up to ships and we can extract rare earths right there using simple acid leaching," Kato said. "Using diluted acid, the process is fast, and within a few hours we can extract 80-90% of rare earths from the mud."
However, the mud containing the rare earth deposits lies in deep parts of the Pacific – under 11,500 to 20,000 feet of water – a daunting challenge Kato did not address.
Many analysts believe that finding a practical way to extract the metals at those depths would take years, if not decades. And the costs could be prohibitive, making mining economically unfeasible.
"Japan will need to build a giant set of SCUBA gear for Godzilla to use while scraping this stuff off the bottom, because there is zero chance they will be building any mines off the coast of Hawaii any time soon," said Money Morning Contributing Writer Jack Barnes, an expert in global-macro investment trends.
"The Japanese have no choice but to look for new on-land sources," Barnes continued, acknowledging the rare earth supply constraints facing the island nation. "Japan needs to consider the Chinese model of buying physical resources and developing it themselves. Greenland comes to mind."
That means Western countries will have to look elsewhere for a savior.
With any luck, Brazil's Vale (NYSE ADR: VALE) could fill that void, as it is considering entrée into the sector.
"Vale would bring big benefits to Brazil by entering into this rare earth market and I think it's an important thing for the west as a whole." Brazil's science and technology minister, Aloizio Mercadante told the Financial Times. "It would also benefit Vale as a company,"
After lining up a possible $12 billion investment by iPhone maker Foxconn Technology Co. in April, Brazil is looking for more ways to develop its technology industry. It's introduced tax benefits for foreign companies and laid groundwork for production of semiconductors. Establishment as a major producer of rare earth minerals could go a long way towards attracting even more investment.
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Surging rare earth prices have Japanese manufacturing, trading sectors nervous
I completely agree rare earth metals will sky and outstrip gold many times in terms of return.
Very good article . . rare earth companies are worth looking into as we enter a possible global growth phase.
Keep up the great work Money Morning !!
As usual, the hegemonic well blinkered, xenophobic, American investor doesn't realize clearly the concept of the world wide economic battlefield, now dominated by China through central planning committees comprised of astounding intellectuals sequestered from the entire Asian gene pool for their high IQ's, and even higher education. America has lost the war on the economic battlefield of the world, to China, even a decade ago. Beyond the American ego, and even above the warped intellectual capabilities of the American-scewed mind, lies an intellectual land inhabited by the real world planners, the ultimate manipulators of all world economic power. Rare earths retraction, taken as an offensive, restrictive move by Americans is really a conservation effort of a valued dwindling, scarce, natural resource within China for China's own markets, for China's own growth, for China's own use. Be well aware that when the EV-1 cars were hammer-milled in America to defend the Status Quo, rare earth magnet miracles went to the scrap-heaps with them! Google the documentary, "Who Stole The Electric Car', A veritable admission by Americans that the Coca-Cola Corpocracy can act in anti-social ways, even showing signs of paranoia and sociopathy, to defend its flanks, over and above even progress for the American people the American nation. Rare Earths be damned! To the hammer-mills with this revolutionary success, that would upset the sunk money in America, threaten gasoline sales, engine plants transmission factories, and a host of patents, trade secrets, proprietary secrets. They were glad to get rid of the rare earth magnets at that time!
Even as rare earth supplies dwindle in the Chinese deposits, the American 'bullies' call foul, and resort to lega and political tactics to force even more, even cheaper product, for their consumption. Like clean water, clean air or even oil, there are natural limitations imposed by nature, not the Chinese. Scarcity is something new for the American mentality to deal with! Soon, America will have to share some of the 80% of the resources of the world it now consumes with a burgeoning Asian empire, rising in the East as we speak, and a diminishing purchasing power of the American dollar, even as the Chinese Yuan rises to significance. America will have to engineer around the consumption of Rare Earths from China, as will Chinese engineers, after all, this is a diminishing resource scarce in the world, and the easy sources will soon be exhausted. America, Face realities, you cannot bully oil from barren ground, You cannot 'Bully" rare earths from granite mountains, You cannot 'Bully" or saber-rattle your way to maintaining your unsustainable American Dream life-styles forever. Change is afoot. It is inevitable. The 'low hanging fruit' of the natural resources of the world have been consumed. A new age is upon America. Even China now declines making large loans to the American situation, and even mighty America cannot force money from them. America is the largest debtor mnation in the world, in all history. We are essentially broke. Our dollar falls in value, and in influence around the world. Even the lowly Chinese Yuan is gaining against the U.S. dollar. Rare Earths are a symptom of America's economic unstabilities as much as a reality check for America's astounding greed. It may be time for change in America, an age of austerity a recoil form the Glory Days of the Cheap Oil Era, a time of less social networks,more hands at work, a time for America to create real wealth from her own resources. \not a time to cry foul at the Chinese.
Please send the news letter, this one is interesting!
Stans Eneregy has the only fully operational rare earths deposits and processing facility outside of China. They have a rail head, roads and other infrastructure already in place. They are now in the Beta stage of new processes that can extract 30% more rare earths than through conventional methods. They should be up and running full steam soon. They are a Canadian company and their stock is cheap for now, but that shuld last long. Read their web site and Fidelity's analytic assessment.
Take a look at Stans Energy's (a Canadian company) web site. Their stock is cheap for now, but not for long.
Goldstake, gxp delisted for tsx, has REE's plus gold, copper, etc., but more advanced and the richest highest grade heavy REEs that I know of are in NT Australia with Crossland CUX .13A ASX and JV partner Pancontinental .17 TSX Venture.
Disclosure: I have interests in both companies and I am not qualified to advise anyone on any investments.