China Hoards... and the Next Great Commodity Crisis

Written By Brian Hicks

Posted July 17, 2010

Welcome to the Wealth Daily Weekend Edition — our insights from the week in investing and links to our most-read Wealth Daily and sister publication articles.


 

 China is tightening its grip on rare earth metals again… and it could cost America dearly.

We already know that China holds 97% of the rare earth market — the very materials that power your iPods, cell phones, and computers.

But it’s the Middle Kingdom’s latest move to cut exports by 72% that has America up in arms.

Put simply, we need the supply or we are screwed.

Electronics could start disappearing from shelves… Products that depend on these materials would see prices skyrocket, possibly bankrupting the very companies that depend on these sales… Green technologies would suffer… And strategic and defense weaponry (guided missiles, for example) wouldn’t be produced as quickly.

The impact on electric batteries and motors would be crippling. Toyota’s Prius depends on 2.2 lbs. of neodymium in the hybrid’s electric motor and 22-33 lbs. of lanthanum in the car’s battery pack.

And there are still plans to double production of the Prius from one million to two million units. But it’ll never happen without rare earth supply. The President can call for a million electric cars all he wants, but they all depend on available rare earth supply.

It’s the same story with wind power; turbines use massive amounts of rare earth. Right now, all of those rare earth materials are coming from just one place: China.

All of this demand will no doubt send prices for rare earth metals soaring.

“Foreign countries should calmly and logically think about this and develop their own mines for their own needs. Our resources are diminishing. And we need these minerals for our own use,” said one researcher from China at a recent conference in Beijing.

There is a bill in the works — the Restart Act — that could reignite the rare earth sector on American soil through loan guarantees and a stockpile of rare earth.

We have possible deposits in Idaho, Wyoming, and Alaska — giving us hope that U.S. rare earth production will get us by. And we can always get a little help from Greenland, Canada, and Australia…

But the clock is ticking. Developing new mines can take years. And it’s not as if the crisis is a ways off. It’s already here.

And it’s the reason we like stocks like Hudson Resources (HUD.V) and Lynas (LYSCF.PK) so much.

Another one we have our eye on is the coming IPO from Molycorp, a company described as the only rare earth minerals producer in the Western Hemisphere. Its Mountain Pass mine (for which it has plans to reopen and expand) is one of the world’s largest rare earth mines outside China.

Think about jumping on this IPO. It could skyrocket if they can make up for the supply shortfall.

But rare earth isn’t the only opportunity out there…

We’re confident that our editors will give you at least one or two investment ideas to mull over through the weekend. You can find those below.

Stay Ahead of the Curve,

Ian L. Cooper
Wealth Daily

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