Blogs & Comment

The rare-earth supply deficit

There are well over a dozen rare-earth elements on the periodic table, with names like neodymium, lanthanum and europium. Much is heard about the growing supply deficit in crude oil and other raw materials but the one developing in the rare earths could also have an adverse impact. On the positive side, there could be a range of opportunities for entrepreneurs and investors.
Rare earth elements are used to make miniature magnets, phosphors and other components necessary to the functioning of iPods, BlackBerrys, LCD screens, disk drives, MRIs, hybrid cars, wind turbines, catalytic converters, batteries, lasers, guided missiles, smart bombs and other consumer, green and military technologies.
Demand for rare earths is growing vigorously as penetration rates for these technologies catch up to those in developed countries. As well, ongoing technological innovation is augmenting demand. There is a wild demand dynamic, to use a phrase from John Kaiser, editor of the Kaiser Bottom-Fishing Report.
On the supply side, rare earths are not rare per se. In fact, they are ubiquitous in the earths crust. Whats rare is finding them in high enough concentrations for economical extraction.
At present, the richest deposits are located in China so much so that the country currently supplies more than 90% of the worlds demand. There is oil in the Middle East; there are rare earths in China, said Deng Xiaoping, the architect of Chinas economic revolution.
As its internal needs grow, China is steadily reducing the amount available for export. And as trade frictions escalate, the West could be cut off sooner than expected, warns Jack Lifton, a rare-earths expert who publishes the Jack Lifton Report.
Indeed, China slashed rare-earth exports dramatically in July, leaving the quota for 2010 at 30,258 tons, 40% less than the 50,145 tons allowed in 2009. The squeeze on prices just got a lot tighter.
As prices climb for rare earths, there will be an incentive for mining operations outside of China to ramp up operations. But most are years away from production, so the rise in prices could potentially go far before supply catches up. In turn, the price and availability of products requiring rare earths could be negatively affected.
Entrepreneurs and investors might be interested in becoming more acquainted with the rare-earth sector, as well as the mining companies headed toward becoming producers in the West. A list of those companies, including Molycorp Inc. ( MCP) and Avalon Rare Metals Inc. ( AVL), is provided at the end of this article.