By Michael Montgomery—Exclusive to Rare Earth Investing News
After weeks of heightened scrutiny over rare earth policy, Chinese officials have tried to calm down the situation. Trade embargos, which have been at the center of this crisis, have been lifted, and shipments have resumed. Rumors of export quotas being reduced by another 30 percent have been denied by Chinese officials, however, unconvincingly. “I don't think there will be a big cut in export quotas,” stated Vice Minister of Commerce, Chen Jian. The statement, while not confidence building, is being echoed across China, easing fears of undersupply slightly.
In the U.S., a proposed law is targeting the strategic importance and the dangers to national security that a Chinese monopoly over rare earth supplies have been undermined by the Pentagon saying that it "poses no threat to national security." The U.S. military stated that it only makes up 5 percent of domestic rare earth consumption.
The report mentioned that “that rising prices and supply uncertainties are spurring private investment in new mining operations outside of China that will help meet American military needs,” reported Gopal Ratnam, for Bloomberg. The Pentagon report also stated that the Defense Department should look into ways to aid companies looking to mine rare earth element domestically through loan guarantees.
The drama over rare earth supply has helped many rare earth juniors share prices as investors wanted to get in on the ground level hoping to make healthy profits on the back of increasing demand for products using rare earth elements. However, after shipments resumed and Chinese officials released statements that calmed the market, share prices for these companies have fallen.
The recent volatility of the market beckons a question. Has the market overreacted to the Chinese monopoly?
In the short run the answer may be yes. China does hold a monopoly over the market, and seems ready to use that position for political power. However, many mining companies that benefited from the increased investor interest over the market, have yet to produce any material, over even break ground on deposits. Rare earth elements deposits are difficult to find in economically viable deposits, and expensive to process. Many of the junior mining companies will not be producing profits from their deposits for quite sometime. Investors looking for short run profits from these companies are short sighted.
In the long run, things look promising. Demand for products that contain these metals will continue to increase, as they are vital for the high tech products that will drive the world economy for years to come. A supply shortage seems inevitable, even the Chinese have commented that they alone will not be able to supply the market.
The Japanese Government isn't willing to bet on whether or not rare earth supplies from China will be consistent. Japan, the largest importer of REE's, is looking to Vietnam for its future supply. In a deal expected to be finalized later this month, “Japan will help Vietnam explore and survey its northern provinces for future rare earth element exploitation,” stated Clay Dillow, for Popular Science.
Japanese companies have also begun seeking out new sources in Vietnam. Toyota Tsusho Corp., the REE imported for Toyota Motor Corp., will team up with Vietnamese companies mining the metals. A spokesman for the company stated that another Japanese company, Sojitz Corp. will be partnering in the project. "We want to secure a stable supply of rare earth minerals," stated Shuji Kimura, a spokesman of Toyota Tsusho.
The future of the rare earth market is strong. Demand for many of the 17 elements may vary, but need for them in high tech products is undeniable. Neodymium is expected to be in a deficit by 1325 tonnes by the British Geological Survey. The lack of established deposits and mining companies in the sector is a double edged sword. An investor may get in on the ground floor of a highly profitable company in a time of ever increasing demand, and supply from only a few producers. However, many of the companies are highly speculative and may never produce material, let alone profit. Potential investors should do their homework, and not be bitten by a frenzy.
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