Tuesday, March 22, 2011

Rare Earth Elements Update

As we continue to shout the facts about rare earth elements and the economics driving their market we wonder if the batteries are dead in our megaphone?

Phase III "Denial" is still our reality.  This phase is so frustrating.  The following article courtesy of Reuters is one of many that state the facts to an unaware mass.

China rare earth prices explode as export volumes collapse

Photo
4:53am EDT
By Tom Miles
BEIJING (Reuters) - China's exports of rare earth metals burst through the $100,000-per-tonne mark for the first time in February, up almost ninefold from a year before, while the volume of trade stayed far below historical averages.
China's squeeze on rare earths, which are used in a wide range of hardware including precision-guided weapons, hybrid car batteries and iPads, has forced prices up dramatically since July last year, when each tonne fetched a mere $14,405 on average.
The apparent price rises have averaged $10,000 per tonne per month but accelerated in February, galloping ahead by $34,000 per tonne, according to Reuters calculations based on data from China's Customs office.
Last month each tonne of exports was valued at $109,036, including the cost of insurance and freight, almost half as much again as the average value in January.
The explosion in export values has coincided with a collapse in volumes coming out of China, the source of almost all the world's rare earth supplies, which has cut export quotas of the 17 rare earth metals and raised tariffs on exports.
China's actions have infuriated its trading partners but lifted the shares of the few mining and prospecting companies outside China that are well-placed to capitalize on the constriction of Chinese supply.
But those firms' share prices have been under pressure this month because Japan's earthquake and tsunami are expected to temporarily slash demand from China's biggest customer. In February, 281 tonnes of Chinese exports went to Japan, valued at $38.9 million or $138,406 per tonne.
China exported a total of 750 tonnes in February, slightly more than the 647 tonnes shipped in January but otherwise the lowest monthly volume since February 2009, when demand was hit by the global financial crisis.
China's Customs office changed its method of presenting rare earths exports in its headline data this year, boosting the reported volume by including products made from rare earth metals in the total.
By that method, exports were 2,976 tonnes in February, up by 132 percent from a year before, when the figure did not include rare earth products.
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As we await Phase IV we can only dream about what the catalyst might be.  Again, at the risk of boring our readers, a sovereign supply shock or a major production shutdown caused by a lack of available material continue to stand out as the most likely catalyst.  Which will it be?

Based on the chart action in our positions we can now estimate that this next phase, Phase IV "Acceptance", will at a minimum double the market capitalization of our positions in 11 months.  300-500% gains would not be a surprise in some positions but guessing which ones can be too difficult.  If our basket more than doubles we have chosen wisely with the odds of success in our favor.

A quick review of the economics in this space could be helpful in sifting through the media's weak attempt to expose the truth.

World demand in 2010 was approximately 100,000 tonnes.  If the price in this article is used for a simple calculation the total market value would be $10,000,000,000.

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