(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)
Last week, an article from China Daily titled “Rare-earth supplies expected to grow” was blamed for the weakness in several rare earth stocks like Molycorp and Lynas Corp. Ltd on June 16th. The article contains numerous quotes from Dr. Chen Zhanheng, director of academic department, the Chinese Society of Rare Earths (CSRE).
It is important to remember that the China Daily is essentially a megaphone for the Chinese government…{snip}…China has every reason to promote news and studies that reduce that pressure. A forecast of imminent abundant supply appears to defend China’s position.
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I feel we have already seen some version of this episode. Goldman Sachs (GS) set off a firestorm of controversy in early May when an analyst claimed that rare earth prices would peak in 2012 as the industry moves from deficit to over-supply after 2013.
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Zhanheng’s comments imply that overseas demand for rare earths will remain at 50,000 tons for the foreseeable future, but he does not volunteer estimates for China’s demand…
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China’s efforts at creating domestic reserves belie predictions of imminent over-supply. For example, on June 15, 2011, the WSJ reported in “China To Set Up Strategic Reserve For Heavy Rare Earths -Sources” that China may be moving forward with a heavy rare earth strategic reserve in addition to plans already in place to build a strategic reserve for light rare earths.
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On balance, I find plenty of reason to believe that the supply of rare earths will remain challenged for quite some time.
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)
Full disclosure: long MCP, GWMGF (Great Western Minerals Group), HREEF (Stans Energy Corp), UURAF (UCore Rare Metals Inc.), GS