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The State of the Global Markets 2015

Rare Earth Metals, The Next Gold Rush?

Commodities / Metals & Mining Sep 29, 2010 - 08:44 AM GMT

By: Tony_Sagami

Commodities

Diamond Rated - Best Financial Markets Analysis ArticleChina and Japan are having a small but potentially painful dispute over the ownership of a small chain of islands in the East China Sea.

These islands have very little significance other than the oil deposits that may lie around them. Whoever owns these islands would have claims to the mineral deposits on the ocean floors surrounding the islands.


Tensions heated up when a Japanese coast guard boat collided with a Chinese fishing vessel on September 7. Japanese authorities detained the Chinese captain and tough talk flowed from both sides.

The culmination was the temporary halt of exportation of rare earth metals from China to Japan.

Rare earth? No, I’m not talking about the 1970′s rock group nor am I talking about uranium or plutonium. I’m talking about a group of minerals that contain elements quite rare when discovered in Sweden in 1787.

If you’ve been an Uncommon Wisdom reader, you would have been alerted to this opportunity more than a year ago when my friend, Sean Brodrick, wrote about them here.

Maybe you’ve never heard of rare earth metals, but you use them every day of your life. They’re used in things like cell phones, semiconductors, lasers, fiber-optic cable, plasma TVs, hybrid cars, microwave ovens, and scud missiles.

They — and just about anything electronic — contain some of the most obscure chemical elements on the planet known as rare earth metals.

The United States Geological Survey (USGS) has identified 17 elements that are considered rare earth metals, but nobody paid much attention to them until recent years because of the development of new technologies and electronic devices.

Most of the world’s advanced defense, medical, and high-tech electronics simply won’t work without rare earth metals. These metals have very special physical and chemical attributes, including high degrees of magnetism, luminosity, superconductivity and environmental non-toxicity.

What are these rare earth metals and what do they do? Here are a few of the most commonly used ones:

Cerium is the most abundant rare earth metal. It is used in catalytic converters and other pollution control equipment. It’s also added to diesel fuel to help it burn more efficiently.

Dysprosium is used in lasers, fuel injectors, compact discs, and increasingly in hybrid vehicles.

Europium is a part of the chemical process to screen for Down’s syndrome.

Erbium is used to produce photographic filters, sunglasses, jewelry, and fiber optical amplifiers.

Holmium has the greatest magnetic strength of any element, and is used in medical/dental and nuclear control rods.

Neodymium is used in magnets to increase the magnetic field. It is used in cell phones, computers, speakers, and miniature motors.

Yttrium is primarily utilized to make red phosphors for use in red LED’s and superconductors.

These obscure metals are so critical to our modern world that they are as strategically important as oil, copper, uranium, natural gas, and coal. And I believe that an investment in rare earth metals will be even more lucrative.

And what’s this got to do with Asia? Tons! Keep reading and you’ll understand exactly what I mean and why an investment in rare earth metals could be the best natural resources investment you can make.

Reason #1: Booming Demand. Ten years ago, the world used 40,000 metric tons of rare earth metals a year. Today, the world uses 125,000 tons, but is expected to grow to over 200,000 tons by about 2014.

The reason for the soaring demand is simple: The world is building and consuming more high-tech devices. Plus, new demand from green energy initiatives is gobbling up all the rare earth metals that the world can produce.

The consensus of the forecasts I’ve read predict a 40,000-ton shortage by 2015.

The U.S. Magnetic Materials Association said, “It is estimated that Chinese domestic consumption of rare earth materials will outpace Chinese domestic supply between 2012 to 2015. It is unclear whether rare earth material will be available outside China in the coming years.”

Here is a link to a 2-minute Reuters news video about the demand for rare earth metals that I highly recommend you watch: http://www.youtube.com/watch?v=q2CpFYCqZz8

No question, the world is headed for a supply/demand imbalance and that will push the price of rare earth metals higher. Much, much higher.

Reason #2: Global Supply Controlled by China. Until 1948, most of the world’s rare earth metals were sourced from placer sand deposits in India and Brazil when South Africa became the largest producer. India and South African still produce rare earth metals today, but China has zoomed past everybody since the 1980′s.

This number is almost hard to believe, but it is absolutely true: China produces and controls 95% of the world’s production of rare earth minerals. Yup, 95%!

The problem is that China currently uses about two-thirds of what it produces, but is on a consumption trajectory where it will use everything it produces in a few more years. When that happens, the U.S. and the rest of the world will be S.O.L.!

In September of last year, China announced plans to lower its export quota of rare earth metals to 35,000 tons per year in 2010-2015.

Wait, it gets worse. China’s Ministry of Industry and Information Technology is considering a total ban on exports of terbium, dysprosium, yttrium, thulium, and lutetium.

It’s part of a plan that Deng Xiaoping started almost two decades ago when he said that rare earth metals would “Do for China what oil did for Saudi Arabia.”

Reason #3: A Matter of National Security. Every piece — and I mean EVERY piece — of high-tech military warfare is made with rare earth metals, including precision-guided munitions, night vision goggles, radar, and lasers.

If we lost our supplies of rare earth metals, our country’s ability to produce many of these weapon systems would cease to exist. Since China controls 95% of the world’s supply of rare earth metals, we are extremely vulnerable.

Rare earth metals are vital to the production of most defense, medical and high-tech electronics.
Rare earth metals are vital to the production of most defense, medical and high-tech electronics.

The General Accounting Office said that the U.S. produced zero rare earth elements in 2009 and that it will take up to 15 years to rebuild our own domestic rare earth supply chain.

“The United States has the expertise, but lacks the manufacturing assets and facilities to refine oxides to metals. Refined metal is almost exclusively available from China,” states the GAO.

The U.S. Magnetic Materials Association said that the United States is already in a “silent crisis.” And that “it is unclear whether rare earth material will be available outside China in the coming years.”

In June of 2009, the U.S. House of Representatives passed HR 2647, the National Defense Authorization Act (NDAA). Section 828 of the Act included language concerning “the availability of rare earth materials and components containing rare earth materials in the defense supply chain.”

Section 828 noted that “less common metals” such as the rare earths and thorium were “critical to modern technologies, including numerous defense critical technologies and these technologies cannot be built without the use of these metals and materials produced from them and therefore could qualify as strategic materials, critical to national security.”

Representative Ike Skelton, chairman of the House Armed Services Committee, said China is a rapidly rising military and economic power and the fact is that they cornered the market on these rare earth metals that are essential for a lot of our advanced weapons systems as well as a lot of manufacturing in the United States.”

Representative Mike Coffman said, “We need to move aggressively on this issue now before it’s too late.”

Between now and the 15 years that it will take to rebuild our own rare earth metal supply chain, you can bet that our Military Industrial Complex is going to be a big buyer and a big stockpile of rare earth metals, the price of which is certain to go much higher.

Reason #4: Green Energy and Rare Earth Metals. Rare earth metals are also a back door way to profit from the “green” revolution. That is because most of the green energy initiatives cannot function with rare earth metals. Three green technologies — hybrid cars, solar panels, and wind turbines — use mountains of rare earth metals.

  • Hybrid vehicles, like the Toyota Prius and Honda Insight, are big users of rare earth metals. Each car has about 2 kg of neodymium in it rechargeable nickel hydride battery and another kilogram or so of lanthanum and praseodymium in the drive train.
  • Solar panel efficiency is measured as a percentage of light energy that is converted to electricity. Silicon solar panels are 25% efficient, but the newest generation of solar panels called multi-junction solar panels have efficiencies greater than 40%. These solar panels use the rare metal indium.
  • Every wind turbine tower has a massive, highly engineered electromechanical system in it that couldn’t operate without lanthanides.

Here is a link to a very informative video about the role that rare earth elements play in green energy: http://www.youtube.com/watch?v=RxZLKiQd0yk

The Green Energy revolution is still in its infancy and its inevitable growth will place huge demand for rare earth metals and send the prices through the roof!

Reason #5: Brain Drain to China. Getting the raw materials out of the ground is just the first step. The next and equally important step is to refine that dirt into ready-to-use form. Not only does China have the raw resources, they also have most of the production capacity: Metal production, alloying, strip casting, magnetic powder production and, ultimately, magnet production.

The rest of the world is scrambling to open up new rare earth mines, but it will take decades to build the refining capacity. The biggest obstacle, however, is that most of the experience and knowledge is in China and can’t be easily duplicated.

For example, the division of General Motors which deals with miniaturized magnet research shut down its U.S. office and moved its entire staff to China in 2006.

Reason #6: Not in My Backyard. The U.S. may talk about building its own rare earth supply chain, the reality is that mining and processing the finished materials is a dirty, polluting process and the environmental crowd in the U.S. will fight any efforts to build on American soil.

Here is a link to a CNN report on the environmental costs of rare earth metals mining. http://www.youtube.com/watch?v=yO94WHkqHg4

Look at the obstacles oil companies have had to get permission to opening new drilling fields or refineries. Nobody wants them in their backyard and rare earth metal refining is even worse. I can’t see any meaningful production capacity opened anywhere but third world countries that are willing to accept the pollution cost.

How can you invest in rare earth metals?

China Rare Earth Holdings produces about 20% of the world’s supply of rare earth metals which makes it the Saudi Arabia of rare earth metals. China Rare Earth Holdings trades both on the Hong Kong Stock Exchange (0769.HK) and the U.S. over-the-counter market (CREQF.PK).

Avalon Rare Metals owns a large but untapped mine in Canada. It trades on the Toronto Stock Exchange (AVL) and the U.S. over-the-counter market (AVARF.PK).

Lynas Corporation has one of the richest deposits of rare earth metals in the world. It trades on the Australian stock exchange (LYC.AX) as well as the U.S. over-the-counter market (LYSCF.PK).

Molycorp (MCP) went public earlier this year on the NYSE. It owns the Mountain Pass mine in Southern California, the largest rare earth metals deposit outside of China.

I should to disclose that my Asia Stock Alert subscribers already own China Rare Earth Holdings and we are sitting on a huge open gain. Even though we have a big gain, I am holding on for even more profits.

You need to do your own homework and decide if any of these rare earth stocks are appropriate for your situation. These are very volatile stocks, so stay away if you don’t have a high tolerance for risk. The reward, however, should be big, big, big.

Best wishes,

Tony

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.


© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Mariel Dimaculangan
19 Oct 10, 08:56
Cerium for Catalytic Converters?
Tony, You mentioned that Cerium is used in Catalytic Converter but when I browsed the website "HowStuffWorks" Cerium is not used in Catalytic Converter, you mislead intelligent reader. Next time make your article accurate so that it is credible to read. I copied and pasted here what I browsed for your intelligent enhancement as well as for your follower. Mariel ----------------------------------------------------------- How Catalytic Converters Work by Karim Nice and Charles W. Bryant * Print * Cite * Feedback * o E-mail This o Facebook o Digg This o Yahoo! Buzz o StumbleUpon o TwitThis o Reddit Share * Recommend Cite This! Close Please copy/paste the following text to properly cite this HowStuffWorks article: Nice, Karim, and Charles W. Bryant. "How Catalytic Converters Work" 08 November 2000. HowStuffWorks.com. /auto.howstuffworks.com/catalytic-converter.htm> 19 October 2010. Inside this Article 1. Introduction to How Catalytic Converters Work 2. Pollutants Produced by a Car Engine 3. How Catalytic Converters Reduce Pollution 4. Controlling Pollution and Improving Performance 5. Lots More Information 6. See all Exhaust & Emissions articles Wrecks to Riches: Catalytic Converter Wrecks to Riches: Catalytic Converter * More Auto Videos » How Catalytic Converters Reduce Pollution In chemistry, a catalyst is a substance that causes or accelerates a chemical reaction without itself being affected. Catalysts participate in the reactions, but are neither reactants nor products of the reaction they catalyze. In the human body, enzymes are naturally occurring catalysts responsible for many essential biochemical reactions [source: Chemicool]. catalytic converter catalytic converter In the catalytic converter, there are two different types of catalyst at work, a reduction catalyst and an oxidation catalyst. Both types consist of a ceramic structure coated with a metal catalyst, usually platinum, rhodium and/or palladium. The idea is to create a structure that exposes the maximum surface area of catalyst to the exhaust stream, while also minimizing the amount of catalyst required, as the materials are extremely expensive. Some of the newest converters have even started to use gold mixed with the more traditional catalysts. Gold is cheaper than the other materials and could increase oxidation­, the chemical reaction that reduces pollutants, by up to 40 percent [source: Kanellos]. Most modern cars are equipped with three-way catalytic converters. This refers to the three regulated emissions it helps to reduce. ­The reduction catalyst is the first stage of the catalytic converter. It uses platinum and rhodium to help reduce the NOx emissions. When an NO or NO2 molecule contacts the catalyst, the catalyst rips the nitrogen atom out of the molecule and holds on to it, freeing the oxygen in the form of O2. The nitrogen atoms bond with other nitrogen atoms that are also stuck to the catalyst, forming N2. For example: 2NO => N2 + O2 or 2NO2 => N2 + 2O2 honeycomb catalyst Ceramic honeycomb catalyst structure. The oxidation catalyst is the second stage of the catalytic converter. It reduces the unburned hydrocarbons and carbon monoxide by burning (oxidizing) them over a platinum and palladium catalyst. This catalyst aids the reaction of the CO and hydrocarbons with the remaining oxygen in the exhaust gas. For example: 2CO + O2 => 2CO2 There are two main types of structures used in catalytic converters -- honeycomb and ceramic beads. Most cars today use a honeycomb structure. In the next section, we'll look at the third stage of the conversion process and how you can get the most from your catalytic converter.

Joe Island
28 Oct 10, 02:59
Gateway to the Pacific

Dear Sir,

Your comment, "These islands have very little significance other than the oil deposits that may lie around them" begs review. The islands represent a strategic channel through which trade and military vessels may freely pass. Their proximity to Taiwan cannot be overlooked. The geopolitical importance of those islands is too great to be summarized here.


gordonmcdowell
15 Oct 11, 13:50
Thorium, Heavy Rare Earths, China & the Loss of Manufacturing Jobs

I found your article when trying to recall what heavy-rare-earths were used by which green industry.

There's another aspect to this you might find interesting...

http://www.youtube.com/watch?v=AkC8kItzdZI

...that thorium regulation helps hamper refining of heavy rare earths, because mine owners do not want to deal with refined thorium as a "radioactive waste".

In China, they separate out the thorium and store it on site for future use. No big deal, no big cost, no "nuclear" public relations hassle.


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