Commodities & Metals

Squabble over China’s Rare Earths Production Continues (MCP, AVL, REE, SHZ, REMX)

In March the US, the European Union, and Japan filed complaints with the World Trade Organization (WTO) accusing China of violating free trade rules by limiting exports of rare earth minerals which in turn raised prices and gave Chinese buyers an unfair advantage. China’s response is essentially that the complainants should go pound sand.

China claims that it has restricted production of rare earth elements in an effort to minimize the environmental damage caused by mining. The US and others say that’s just an excuse to force prices up. China currently produces about 90% of the world’s supply of rare earth minerals, but US companies Molycorp Inc. (NYSE: MCP), Avalon Rare Metals Inc. (AMEX: AVL), and Rare Earth Resources Ltd (AMEX: REE) are preparing to enter the market as well. China’s only US-traded rare earths miner is China Shen Zhou Mining & Resources Inc. (AMEX: SHZ).

The Chinese have a pretty compelling argument against price fixing — the price of most rare earth minerals has declined in the past year. Lanthanum oxide, for example, has dropped from $50/pound in January to $35/pound today. In January 2011 the price was around $130/pound. Only the very lightest (and rarest) of the rare earths have seen a price hike, and those hikes have been relatively small.

Earlier this week, Australian company Lynas, another rare earths miner, appears finally to have gotten permission to proceed with its rare earths refining plant in Malaysia. The plant could be in production by the end of the year, about the same time that serious production would begin at Molycorp’s California mine and processing plant.

The only stock moving in the pre-market this morning is Molycorp, up about 1% at $20.87 in a 52-week range of $19.11-$66.62.

The Market Vectors Rare Earth/Strategic Metals ETF (AMEX: REMX) closed yesterday at $14.19 ina 52-week range of $13.02-$26.42.

Paul Ausick

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