I Feel the (Rare) Earth Move Under My Feethttp://www.fool.com/investing/general/2012/04/20/i-feel-the-rare-earth-move-under-my-feet.aspx Sara E. Wright
April 20, 2012
This month China announced the formation of a rare-earth industry association. After a series of other moves aimed at protecting its scarce and essential rare-earth resources, this should alarm investors, but it could lead to some potential opportunities. Investors' ability to profit will depend on their tolerance for the seismic activity in this space.
Rare earth: uncommon dirt?
In the 80s the U.S. was the dominant source of rare earths. Since then it has lost nearly all of its capacity, and become almost completely dependent on imports for this precious resource.
The Manchurian element
China has been tightening supply on rare earths for some time now. Many investors remember 2009, when the country set serious export quotas on these elements, much to the concern of foreign companies dependent on the flow of raw materials. This latest move to create an industry association was reportedly designed to consolidate a sprawling industry and manage the environmental risks of ore extraction. Cynics see an attempt to shore up production for domestic use.
Rare-earth specialists expect Chinese domestic demand to catch up with supply around 2015. That would leave a huge shortfall of a vital raw material for countries like the U.S. People should be a lot more concerned about this than they seem to be. Did I mention that rare earths are critical to many essential military applications?
Dig it up and sell it, right?
This is important, because experts believe that unless the U.S. has domestic or friendly capacity at every level of this value chain, the country will be vulnerable. Remember how I mentioned projections that Chinese domestic supply and demand would converge? That doesn't leave much for the rest of us.
Replace, reduce, or recycle