The Rare Earth Revolution

It looks like the shortage of Rare Earth Minerals is coming home to roost. This is a group of 17 metals that are essential to many facets of Hi Tech manufacturing. China controls 90-95% of these minerals. A Chinese premier in the eighties once said "The Middle East has oil, China has Rare Earths". He was right.

In 2009 we wrote the following:


The more I read about this group of seventeen metals, the more it dawns on me that whoever controls the supply of these metals, controls the world. Literally! China controls at least 90% of the source of REM (Rare Earth Metals).  The more we learn the more obvious it is that we are just scratching the surface as regards the strategic importance of these metals. CHINA has triumphed in a 15-year quest to become the "ultimate monopolist" in the supply of rare earth metals - a dominance that industry experts say could give Beijing control over the future of consumer electronics and green technology.


1.According to the New York Times, "The Mideast had oil, but China has Rare Earth Elements. As OPEC did with oil...China is about to tighten its hammerlock on the market for some of the world's most valuable metals." From hybrid car batteries to wind turbine motors to missile guidance systems... From iPhones to solar panels to flat screen TVs…Metals such as cerium, promethium, europium, and many of the remaining 17 rare earth elements are essential to all modern electronic devices that use rechargeable batteries, electric motors, photo optics, solar cells and strong magnets


Toyota’s hot selling hybrid car, the Prius, uses more than half-a-dozen rare earth metals.

2.REM further have a range of sophisticated uses from missile systems, precision-guided weapons, night vision and radar systems to hybrid cars, batteries, cellphones and wind turbines. I read that sentence over and over to understand the implications of shortages of these metals. They have unique magnetic  (GM has moved its whole magnets division to China), optical and other properties crucial for miniaturization, lasers and energy efficiency.  Imagine a cellphone the size of a shoe. Or a laptop weighing 10 kilograms. That’s what we would be carrying around today, if not for the rare earth metals.  Their unique properties that have enabled the miniaturization of  electronic components including capacitors, lasers and powerful magnets.


3.Catherine Ngai - National Geographic news: “Smart bombs” that use neodymium-iron-boron magnets to control the direction when dropped from an aircraft, lasers that employ neodymium, yttrium-aluminum-garnet used to determine the range of enemy targets at distances over 22 miles, and neodymium-iron-boron permanent magnets used for sound system components used in psychological warfare are among the many, according to a 2004 USGS paper.  These are just a few examples. Wow! Who Knew?


4.Forget about green technologies, for the moment. Bottom line is that these metals are essential for the manufacture of sophisticated weapons systems. It will take the US and the rest of the world at least five to seven years (some estimate as much as fifteen years)  to catch up on production and mining, using today as a benchmark. Who knows how much will be needed in the coming years. So if the Pentagon and Department of Energy are outwardly calm, trust me when I say that inwardly, anxiety verging on panic is the name of the game. And no amounts of Lorazapan (an anxiety medication) will be of help.


NOW FAST FORWARD TO THE PRESENT:


1.On 6th Jan, 2012 we mentioned that Rare Earths were close to the bottom of the cycle.  REMX the rare earth ETF stood at $15.51. Today it traded at $17.70. A rise of 14% in less than a month. At the time we reported "The creation of a US Rare Earth strategic reserve is more likely to get the go-ahead after China's largest exporter halted production, two congressional sources told dealReporter. Such a move would create another source of demand for the metals, likely aiding a rebirth of the US Rare Earth industry, said two company executives and a company spokesperson." REE a US miner did even better. It doubled in price within a 5 week period. Obviously somebody knew something was in the wind.
Below is a two year graph of REE

GOODBYE OIL AND HELLO RARE EARTHS


This is an extremely volatile market. Before any investment is made, please consult your broker as regards YOUR risk


A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life - Suze Orman