(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)
Last week (July 22) I summarized Seagate’s earnings commentary partially blaming a “bubble” in rare earth prices for causing a margin squeeze for the company. Seagate management claimed that the soaring prices of rare earth elements (REEs) are very similar to a brief episode of soaring prices of Ruthenium back in 2006. The price bubble for Ruthenium was quite dramatic. In about a year, Ruthenium prices increased about 8x. The Minor Metals Trade Association (MMTA) provides a graph from Johnson Matthey showing the 2006-2007 run-up in price:
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I decided to dig a little deeper into what happened in 2006 to Ruthenium. I did not find a supply/demand situation that looks anything like what is going on with rare earths today. For this research, I sought the advice of Johnson Matthey Public Limited Company…
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…Ruthenium had a brief price spike because one new application caused an unprecedented surge in demand for the metal. Once the materials industry was able to adjust to that demand, prices fell back to historical levels.
The current REE crunch was exacerbated by Chinese quotas which are not likely to improve significantly anytime soon. The supply adjustment that the REE industry must make is very significant given entire mines have been restarted and supply chains built and/or rebuilt…{snip}…quite unlike the mere months it took to increase Ruthenium supplies from mines already in operation with functional supply chains. While this cycle plays out, the demand for REEs will continue to increase across a broad range of applications and products.
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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.PK