A boom in rare metal prices has garnered a lot of attention for the "rare earth" stocks. They may even be the next set of hot commodity stocks. The Market Vectors Rare Earth/Strategic Metals ETF (REMX), for example, has been in an upward trend since last October.
"Prices of heavy rare earths, used in products including magnets, plasma TVs and smart phones, have more than doubled over the last two weeks after China announced plans to centralise control over its rare earth mine assets, according to U.K.-based publication Industrial Minerals," wrote Diana Kinch of MarketWatch.
What exactly are rare metals?
"They are used, a pinch here and a pinch there, to make powerful permanent magnets for lightweight electric motors, phosphors for colour television and flat-panel displays, catalysts for cars and chemical refineries, rechargeable batteries for hybrid and electric cars, generators for wind turbines, as well as numerous optical, medical and military devices. To give just one example, every Toyota Prius has over 25 pounds of lanthanum in its nickel-metal hydride battery," according to the Economist.
China currently produces and exports 97% of the world's supply of rare earths. China's success in dominating the market largely comes from its loose environmental policy rules, which allow Chinese miners to dig up the minerals cheaply. Rare earth deposits, however, are also found in many other countries, including Australia and the USA, and are not as rare as their name implies.
China announced a policy to severely limit rare earth exports, purportedly for environmental reasons. Analysts and pundits foresee two outcomes from the policy. First, the price of rare earths is expected to continue increasing as excessive demand is met with limited supply. Second, rare earths will likely be cheaper within China, allowing Chinese manufacturers to buy rare earths at lower prices, which will allow them to transition to selling higher-value goods (like flat-panel screens for tablets, laptops, TVs, as well as batteries for hybrid cars) instead of low-value basic materials.
Since China's policy announcement, Japanese scientists have found a large deposit in the middle of the Pacific Ocean (close to Hawaii and Tahiti). These deposits, which are in international waters, could help increase the supply of rare earths, as long as the international community approves the mining permits and the mining technology is viable (there are pertinent environmental issues that miners must contend with).
In the U.S., Molycorp of Colorado has announced plans to update and expand its main rare earths mining project in Mountain Pass, California.
"When Phase 1 of Project Phoenix is completed, which is expected to occur next year, Molycorp's manufacturing assets will comprise the world's first fully integrated rare earth manufacturing supply chain, producing high-purity rare earth oxides, metals, alloys, and neodymium-iron-boron (NdFeB) permanent magnets, widely used in transportation, high tech, clean energy, defense, and other industries," according to BusinessWire.
To help you follow this commodity trend, here is a list of five rare earth stocks. Do you think these companies will flourish as rare earth prices and demand skyrocket? Or do you expect China to maintain its stranglehold of the supply (considering it may be years before these non-Chinese projects are operational)?
List stored by market cap. (Click here to access free, interactive tools to analyze these ideas.)
2. Avalon Rare Metals
3. Rare Element Resources Ltd.
4. Quest Rare Minerals
5. PolyMet Mining
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Andrew Dominguez and Alexander Crawford do not own any of the shares mentioned above. Data sourced from Finviz.
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