Rare earth metal stocks have been shining this week as a number of catalysts have propelled the stocks higher. According to the U.S. Geological Survey (USGS), rare earth metals are the 15 elements with atomic numbers 57 through 71, from lanthanum to lutetium, plus yttrium (39). Common uses for the metals include cell phones, laptops and TVs. The metals are also very important to the defense industry, with uses in cruise missiles, precision guided munitions, radar systems and reactive armor, according to the Institute of the Analysis of Global Security (IAGS). These metals are also very difficult to mine and require a lot more expertise and processes than something like gold.
The United States used to be self-sufficient but with cheaper labor and lower regulatory restrictions, the industry was basically transferred to China. And throughout the 90s the U.S. basically relied on China for nearly all of its supplies. Now China is saying that it is going to have to cut back on the mining of these metals because it is suffering from depleted reserves, environmental damage, and it wants more influence over global pricing. There also have been problems with smuggling and overproduction.
The environmental concerns are significant for China. According to the IAGS, a major concern surrounding China’s practice of mining rare earth elements is the negative impact it has to the environment due to lax mining practices. There are a number of potential environmental implications to mining rare earth elements if not done properly. Unfortunately, because of the revenue potential, many rare earth mines have been operating illegally, with no regulation, causing severe environmental hazards, which exacerbates the problem.
Prices for these metals have been climbing rapidly. After climbing 3-5x since January, prices for rare earth metals have doubled in the past three weeks, the Financial Times reported over the weekend. Because of the price rise, there have been a lot of complaints from the developed world about China’s pullback and that it is trying to manipulate prices. However, China only has 30% of the world’s rare earth metal reserves. There are other countries with significant reserves, including the United States (3rd largest reserves in the world), but it seems like the sources are not ready to be mined.
The FT report over the weekend and positive broker commentary on Monday has led to increased interest and share prices of rare earth metal stocks. Here is a list of the most popular ones and their price change for the week:
Avalon Rare Metals 11% (AVL), China GengSheng Minerals 37% (CHGS), General Moly 4% (GMO), Molycorp 11% (MCP), Quest Rare Minerals 14% (QRM), Rare Element Resources 13% (REE), China Shen Zhou Mining & Resources 39% (SHZ), and the only one down for the week, Qiao Xing Universal Resources -14% (XING).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.