Substitutes for Rare Earth Minerals Under Development (MCP, AVL, REE, REMX, GM, TM, PHG)

Given the relative scarcity and high cost of rare earth minerals, it’s only natural that companies that currently depend on the stuff would search for substitutes. And if anything is going permanently to break China’s hold on the market for rare earths, it will very likely be the development of substitutes.

While rare earths miners like Molycorp Inc. (NYSE: MCP), Avalon Rare Metals Inc. (AMEX: AVL), and Rare Element Resources Ltd. (AMEX: REE) race to begin production, other companies like General Motors Corp. (NYSE: GM), Toyota Motor Corp. (NYSE: TM), and Koninklijke Philips Electronics NV (NYSE: PHG) are working on finding substitutes for the rare metals. Toyota announced last January that the company had developed a new motor for its hybrid cars that does not require lanthanum, neodymium, and dysprosium.

GM has figured out a way to reduce its demand for dysprosium in its Chevy Volt, and Philips is actively looking for rare earth substitutes for LED lighting. Makers of lasers and many consumer electronics devices also use rare earth metals, although quantities are often very small.

The news for rare earths producers isn’t all bad though. One of the chief uses of the metals is in wind energy turbines, and the US Department of Energy has projected a tripling of demand for dysprosium by 2025 according to a report from Reuters.

Prices for rare earth minerals vary, and are typically contracted directly or brokered so that details are not easy to get. Still, the prices for most of the rare earths has dropped or remained steady since the first of the year. Lanthanum oxide for example is down -30% since the end of 2011, at $35/kg. Neodymium oxide is down -20% at $130/kg. Dysprosium oxide is flat, at $1,500/kg. Scandium oxide is the priciest of the rare earths, at $7,200/kg, up about 3% since January.

The rare earths miners are getting slapped around in the markets today. Molycorp is down -6.6% at $20.38 in a 52-week range of $19.11-$66.62. Avalon is down -6.3% at $1.49 in a 52-week range of $1.36-$7.03, and Rare Element is down -6% at $4.71 in a 52-week range of $3.08-$11.80. The Market Vectors Rare Earth/Strategic Metals ETF (AMEX: REMX) is down -3.4% at $13.29 in a 52-week range of $13.02-$26.42.

Paul Ausick