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Obama: U.S. Energy Future Depends on Rare Earth Metals

Will a near-monopoly in rare earth metals do for China what oil did for Saudi Arabia?

Not if the U.S. government has anything to say about it.

President Barack Obama made that clear last week when he joined the European Union and the Japanese government in filing a complaint with the World Trade Organization (WTO) about China's manipulation of the global market in rare earth metals.

"We've got to take control of our energy future and we cannot let that energy industry take root in some other country because they were allowed to break the rules," Obama said in a press conference.

It's a clear signal that Obama will do anything to keep China from maintaining a stranglehold on rare earth metals-a set of 17 minerals that are responsible for powering everything from hybrid cars to self-cleaning ovens.

More importantly, the filing is an acknowledgement that the minerals represent a crucial source of renewable energy that are now essential to the way we live.

Rare Earth Metals: Easy to Find, Hard to Mine

Rare earths have been in the headlines a lot recently.

That's because demand for rare earth metals has skyrocketed in the past few years and is likely to grow exponentially in the years ahead.

The pace of technological innovation is accelerating and the world is producing and consuming more high-tech devices than ever before.

After the rare metal Europium was introduced as a source of the color red in TV sets in 1967, their use has expanded to MRI and x-ray machines, DVDs, mobile phones, lasers and many other devices that we use daily.

More recently lanthanum has become a key component of hybrid car batteries, making it critical to Obama's campaign to double the fuel efficiency of the American automobile by 2025.

Crucial as they are, the elements are hardly rare. They are found scattered around the globe in the earth's crust and are as commonplace as copper and lead.

The problem is, they are usually found in small quantities, making them difficult to cost-effectively mine. They also come with severe environmental hazards because they are often found along with radioactive materials or other harmful substances.

China's Near- Monopoly on Rare Earth Metals

As it turns out, China has vast rare-earth deposits, mostly in Inner Mongolia. The government has also heavily subsidized state-owned mining companies and allowed them to operate without strict environmental oversight.

That's made China the biggest producer of rare earths, with a more than 95% share of the global market.

Over the past decade, demand has tripled to 125,000 metric tons a year and could exceed 200,000 tons by 2014, the BBC reported.

Prices for rare earth metals soared in 2010 after China slapped a temporary ban on exports in the middle of a trade dispute with the U.S. and Japan. China later dropped the ban in favor of cutting exports to 93,800 tons per year.

But China isn't just choking off supplies. It's also stoking its domestic mining industry with favorable pricing as a ploy to get Western manufacturers to move factories inside China, according to a study by Bloomberg Government.

The average Chinese export price of neodymium oxide – a key component in computers – was $321 per kilogram in the summer of 2011, 66% higher than the domestic price and a 563% increase compared with the same period in 2010, the study said.

The inflated prices have put Western manufacturers on the hunt for alternatives.

"You are seeing a lot of investment by high-tech firms on research to become less reliant on these materials," Matt Robinson of Moody's Analytics told the BBC.

Miners Expand

Beijing has denied the allegations in the WTO case, saying that it enforces quotas to ensure there's no environmental damage from excessive mining.

The WTO's rules require China to hold talks with the U.S., the EU and Japan within two months. But the WTO cannot impose a solution, setting the stage for a protracted negotiation and perhaps even a trade war.

Meanwhile, mining companies have been watching the developments with an eye towards cashing in.

Australia's Arafura Resources Ltd. (ASX: ARU) is raising $1.05 billion for a rare earth project.

And Colorado-based Molycorp Inc. (NYSE: MCP) has restarted the largest U.S. rare earth mine in California, after it was shuttered in 2002 due to environmental issues.

Commodities expert Peter Krauth says the rare metals dispute is just another example of what's been going on for decades.

"Over the last 160 years, humanity has dug up, refined, processed, and consumed all the easy-to-get minerals. Economically viable supplies of much of the "stuff' we take for granted are being depleted at an exponential rate."

Krauth feels a succession of historic profit opportunities await those who know how to leverage this predicament.

In fact, soon virtually every substance vital to modern life will become enormously expensive and profitable for investors who know how to play it.

As commodities and mining expert Peter Krauth explains in his latest report, "today's scarcity and soaring costs could spur the biggest investment gains in history."

To read Peter's latest free report click here.

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  1. Earl Reilly | March 19, 2012

    The problem with existing companies that have rare earth deposits, they do not have the facilities to refine their ore deposits. To build these needed facilities will take billions of dollars with years towards completion and turnaround. However, there is a little known Canadian company that has purchased a complete facility with the required infrastructure and who has the mining rights to significant rare earth deposits. The company is Stan's Energy (HREEF) or (RUU) txv and you can read about it in Standard & Poor's Factual Stock Report, April 2011. Stan's Energy is currently upgrading their facility with state of the art refining processes to increase production by an estimated 30%. The stock currently trades under one dollar, but once it becomes better known and followed by analyst, who knows how far the stock will run. In any event, it has a significant upside potential.

    • Sean Pegg | March 19, 2012

      No listing for RUU
      it is HRE on tsxv.
      This is a very promising competent company in a tremendously proven zone.
      Cheap cheap at these prices.
      do your own DD.

  2. David Phillips | March 19, 2012

    Actually, name is Stans Energy Corp, located in the "Stans". TSXV listing is actually HRE, not RUU.

  3. Eddy Widjaja | March 20, 2012

    I cannot help praising China for not following their western counterparts by shutting down the RR mining some time ago. Please take note : the chinese don't stop production of rr metals, they don't even reduce the quantities produced yearly, THEY ONLY REDUCE THE GROWTH RATE !
    Eddy Widjaja.

  4. Prince | June 12, 2012

    What a foolish person. Wisdom yes China has tons of wisdon but if you check out its history it has notalways used it well. it has been a feutal society for thousands of years. They have set their eyes on the biggest prise of all, the world.China is waging war on the world right now. At first the world refused to believe that Hitler was a monster, Nations kept trying to appease him, and each time they gave him what he wanted he would lie to them just to keep them off balance till he was ready to show his hand. Everytime i think of what China is doing i think of The Art of War, by Sunzi. China is employing these methods. Read the book. Next read these books, 1.China's Megatrends the 8 Pillars of a New Society.2. The China Strategy, 3.The beijing Consensus. 4. China Inc, 5.When China Rules the World. 6.The Coming China Wars. During world War II Europ and the U.S.A. joined forces to stop hitler and Mousilleni, then America stopped Japan. Right Now China is taking on America and Europe because the are a part of NATO. China has told Russia to sit back and they will show them how Russia went wrong in how they dealt with the Nato alliance. So they have set out on a campaign to take their ability away from them to wage war by draining up all of the earth's rare elements. You in India should be aware of whats to come next. China looks at India as the only Nation that can match them man for man with it's population. But im sure they have a special plan for you too. Your economy is moving too slow, Your people are very bright but you just can't get it right When the time is right China will deal with you too. If all Indians think like you they will just roll over and let China subjegate them. You see what you say comes from hate, Hatred for superpowers. What would Mahat Mughandi Please excuse my spelling, but what would he say of how China and Russia turns a deft ear to the slaughter to whats going on in Syria. They have great influence there but they say they will not interfer in another nations internal affairs. This is they way they want the rest of the world to behave when they do the same to their own people. One more thing can you tell me are the Chinese Communist or Capitalist…… I can no longer tell. Did you know that the newly rich people of China are bying up homes here in America. What does that tell you. I had to send this to another person… read the books so you can see just how far the rabbit hole goes

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