For the past few months, we've heard about the incredible demand for rare earth elements outstripping constrained supply, after China cut back on exports. But there are a few elephants in the room keeping some investors skeptical of the space, including myself. One of those elephants reared its ugly head last week, when Toyota Motor
Rare elements have been riding a couple of myths to higher stock prices over the past six months. One is the thought that demand will only increase and that substitutes are unavailable. Another is that the supply/demand curve doesn't have a breaking point. But when prices get high enough, manufacturers will look for alternatives.
Rare earth stocks feeling the pain
Sky-high rare earth prices have pushed Molycorp
Molycorp in particular is starting to feel the pressure to keep other suppliers at bay. The company is trying to get federal loan guarantees to support its expansion, and it's lobbying against competitors' attempts to fast-track environmental assessments. It may be in our national interests to expand rare earth mining, but Molycorp isn't keen on the idea.
If Molycorp really thought prices would stay high and demand would continue to rise faster than supply, why would it go to such lengths to stifle its competition?
As I warned earlier this month, rare earth stocks face many headwinds as supply increases outside of China. Now that one big buyer of rare earths is bringing demand assumptions into question, investors have a little more to think about.
Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.
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