The rare-earth metals industry has come a long way since Molycorp (NYSE: MCP) hit the public market. We've seen China cut exports and prices skyrocket, and soon we'll see some significant production from outside of China come on the market.

Right now, Molycorp looks like it's going to be a hit when full-scale production begins later this year. During the fourth quarter, with just 3,050 metric tons of sales volume, the company reported $396.8 million in revenue and $169.1 million in GAAP earnings. During the fourth quarter alone, adjusted earnings per share hit $0.41, capping a year with $1.73 of earnings per share.

The company has worked hard to push up its Project Phoenix and now expects to complete phase 1 and 19,050 metric tons of annual rare-earth oxide production by the end of the third quarter. Phase 2, which will approximately double production, is expected to reach mechanical completion by the end of this year with production soon after.

If rare-earth mineral prices stay where they are, the company could see earnings explode. But will they?

Now the fun begins
Prices are sky-high because China is limiting exports to around 30,000 metric tons per year. This accounts for almost all of the rare-earth minerals that are used outside of China.

But Molycorp is bringing 19,050 metric tons of annual supply online in the third quarter and 40,000 metric tons in 2013. Combine that with the 22,000 metric tons of supply from Lynas Corp. (OTC: LYSCF) that is coming on line around the same time, and the market could be flooded; 62,000 metric tons of annual production from these two companies is double the entire exports of China.

This doesn't include any potential production in the future from Rare Element Resources (AMEX: REE), Avalon Rare Metals (AMEX: AVL), or any number of competitors that are working to open mines worldwide.

Prices are already starting to indicate the party may soon be over. Lynas' Mount Weld composition pricing per kilogram has fallen from $193.21 in the third quarter to $123.69 in the fourth quarter and $91.05 today. And this is before either Lynas or Molycorp really hits the market with supply.

The big unknown
So will prices remain high, giving Molycorp strong margins and profits into next year? Let me know what you think in our comments section below.

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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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