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Jack Lifton
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Jack Lifton is an Independent consultant and commentator, focusing on the market fundamentals and future end use trends of the rare metals. He specializes in the sourcing of nonferrous strategic metals and on due diligence studies of businesses in that space. His work includes exploration,... More
My company:
Technology Metals Research
My blog:
The Jack Lifton Report
  • Underpriced Rare Earth Metals From China Have Created A Supply Crisis 2 comments
    Dec 6, 2009 9:32 AM
    Todays, Dec. 6, 2009,  Times of London (NASDAQ:UK) has an interesting story about the environmental problems in the region of Inner Mongolia that accounts for essentally all of the production of "light" rare earths today in the world.

    China has a policy of predatory pricing, which has allowed it to gain monopoly control over some strategic natural resources such as the rare earth metals. The policy has now backfired as the low revenues to Chinese producers have deprived them of the investment funds they need to not only expand production but also to maintain the production they have.

    The result is a massive Chinese environmental problem, which threatens all by itself to cut  non Chinese end users off from their only supply.
     
    I wonder if our western institutional investors really understand the key driver for China's rush to "develop" its natural resources. Western investors see greed/profit as the main driver for any production of natural resources anywhere. I think that the Chinese government,which we must remember is the owner of, and licensor of any production of, all natural resources in China, is determined to catch up with western technological progress by whatever means necessary not to make profits but rather to level the cultural playing field. Chinese "entrepreneurs" are not risking their lives and endangering the lives of their fellow countrymen primarily to produce natural resources for export; they are driven by greed, surely enough, but their greed is satisfied by the managers of Chinese state enterprizes who cannot get sufficient raw materials to meet their quotas under the current five-year plan. These managers will pay more than the "contract" price for supplies, because in China failure to meet your goal is the same as failure to do your job, and simply to say that you could not get sufficient supply is merely making excuses, because the same five-year plan that you are not fulfilling says that the natural resource producers will produce enough material to fulfill their part of the plan, and their suppliers of equipment will also produce enough. Those failing to meet their quotas are clearly failing the people... I think we all understand how this type of pressure can lead to environmentally unsound decisions and even to official mines looking away from unscheduled and unsafe production.
    The idea that we in the west can compete with this type of thinking by simply looking at such metrics as "return on investment" is at best naive.
    I have said before and I will continue to say that the so-called prices set for rare earth metals by Chinese producers at all levels are arbitrary.
    When the crunch point comes, and it may come very soon, when there are no rare earth metals to be had in China for export the prices of the rare earth metals will skyrocket and institutional investors will squander billions to re-start the western supply and value chains for the rare earth metals. Western institutional investors simply don't know how to value rare metal resources; they are about to have an expensive lesson.
    Let me repeat: I believe that the rare earth metals are underpriced already at the present time, because they represent a Chinese pricing set for the main purpose of keeping the production of the rare earth metals and of their end use products in China to maximize the jobs created by this industry within the domestic Chinese economy.
    This situation cannot last much longer, because China itself is running short of rare earth metals due to inefficient production methods, environmental problems, and corruption.
    Any questions??


    Disclosure: I have no positions in the stocks of any rare earth mining companies
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  • Tekton
    , contributor
    Comments (29) | Send Message
     
    I am hopeful that the rise in prices will enable our North American companies in building value added businesses here on this continent. As supplies shrink and prices increase, the demand may well be met, for a time, by exporting ores and concentrates, while new income streams to support , long term, more efficient, and environmentally sensitive supply lines are constructed and established. There is no doubt our continued technolgical advances will depend on Rare Earth Elements for a long time to come. We must plan accordingly.
    7 Dec 2009, 09:28 AM Reply Like
  • pdtor
    , contributor
    Comments (1528) | Send Message
     
    How do you recommend we play this? Which stocks do you recommend? I have a position in Li and gwg. This is a long term play and I think will take several years to play out, although I follow you for short term advice.

     

    Thanks in advance for replying
    7 Dec 2009, 04:25 PM Reply Like
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