Friday, March 4, 2011

Rare Earth

China has the right to reduce rare earth export to its advantage, just like OPEC controlling oil. China has been giving a free ride to the world at the expense of its environment.

China uses it as a weapon against the dispute with Japan and/or other countries. Despite the mutually beneficial trade, Japan has been brutal to China in the last 250 years. The role in Opium Wars and the criminal acts in WW2 are just some examples. The two A-bombs should be dropped on the imperial palace, not for the innocent folks.

With the restriction of importing weapons from US, should China do the same in restricting the rare earth that helps US weapons?

Rare earth elements are available in many parts of the world. They are not mined due to the cost and the environment damages. It is about time China cares about its own environment and charges its minerals as much as the market can bear – it is a free market after all.

All the companies in mining these minerals will enjoy appreciation in the short term. However, it is the riskiest investment by now as we do not know what is the next move by China.

Chinese want to use this strategy to improve foreign investment and advantage in its industries that use these rare earth like hybrid cars and turbines. WTO cannot accuse China in limiting export of these rare earths as there is no such precedent.

China should and should charge these rare earths at 10% below the closest competitors. If they are more than 10% less, the local governments will step in to protect their industries and/or take actions.

China has at least 3 years before these foreign mines are ready - as of this writing some mines on rare earth are ready now. By then, China will decide the prices again based on whether they want to capture the rare earth market and/or their products that use these rare earth elements.

(c) TonyP4 3/8/11

Disclaimer: All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.


  1. Mike Halt:

    The lead that China has developed over a period of decades with respect to the entire rare earths industry involves much more than simply mining. For example, while it may "only" take slightly less than ten years to turn a potential resource into an operating mine, the production of separated rare earth oxides is just the tip of the iceberg.

    These rare earth oxides must then be converted into metals/alloys, and then into final products. There is a lot of science and research involved in this process. China has thousands of research scientists that have been dedicated to this field for many, many years. Molycorp in the US just pulled our research scientist out of retirement so we could "compete." We used to be the largest producer of rare earth elements, but the closure of Molycorp and Magnequench, the latter being a manufacturer of bonded rare earth magnets, was not due only to a decline in prices for rare earth elements below levels that profit-seeking companies in other parts of the world could afford. Magnequench was sold to the two step-sons of Deng Xiaoping with Archibald Cox Jr. acting as the front man. They pledged not to move the purchased facilities to China and they didn't -- they just duplicated it, and then let the Magnequench facility in Indiana go idle -- well, almost idle. It now serves as a day care center for dogs! And, shortly after Magnequench was idled, Molycorp was shut down by the EPA in part because its mildly radioactive tailings might pose a threat to the desert tortoise.

    It has been reported that the head of the EPA at the time had an intererst in the Chinese company that purchased Magnequench. If "good old capitalism" could have allowed that to happen, how can we be so sure that all of these unusual developments over a protracted time period will be no match for free markets? Don't get me wrong, I deeply want free markets to prevail, but this is less likely to occur if we dismiss the risks associated with China's dominant role throughout the entire rare earths supply chain. Its plain to see that this is also what you want, and that those "looking into" other alternatives want, but that's not enough to convince me that this challenge will just go away if we stop worrying about it, or jawbone it away as just another one of those fads. The real risk is the leverage that control over rare earth elements gives China over access to the many technologies that still do rely upon rare earths. These are often the same technologies that the US is relying upon to grow its way out of its enormous debt. Company after company has been willing to allow China to gain access to more and more advanced technology. The real issue, then, is to devise ways to address that. You may be relieved that I have some ideas to share in that regard, but that's another topic for another day.

  2. Dsvewmart:

    The internationalism of labour and capital has lead to the export of whole industries and dependency.
    The Chinese were never going to make that mistake, and mix the efficient allocation of capital with healthy doses of mercantilism, so as to ensure security, most notably in basic foodstuffs such as rice.
    The imputed motive of the Chinese to corner the market conflicts with both what they have said and their possibilities, as they are well aware that over the next ten years or so resources will be developed elsewhere. Their own demand is increasing rapidly as their economy expands and they don't want to end up dependent on imports themselves.
    If their policies lead to some additional manufacturing being re-located to China, well and good, but the primary drive seems to be exactly what they say it is, to conserve their own resources.

  3. An updated article.

  4. Shaggingman:

    Tony MountainPass. I think it was you that warned folks to get out of Molycorp(MCP) thank you, and today it's bankrupt and shutdown but they're loaded with rare earth elements for which China undercut and killed the market for causing them to BK I believe.

  5. The above is from my book "Complete the Art of Investing" available from