There, I said it! I feel better already.
I’ve been thinking about it for over a year, but the “rare earth scare has prevented me from saying so. I have a vested interest in wanting to see the rare-earth community develop and flourish after all, many of our loyal readers are key buyers of these materials.
Okay, go ahead and start throwing your tomatoes. I’m calling it froth, bubble, hype, hysteria, whatever. This is, of course, “my opinion (see header above commentary).
I’ll give you three reasons why I think this is a bubble. First, we’re talking (particularly the WSJ, the NY Times) about export bans on rare-earth metals more than we are talking about, say, the Chinese hacking into our nation’s computer systems (we’ll save that story for another time). Second, every Tom, Dick and Harry has a tin cup out looking for investment money (with all due respect to those with valid mining resources). Third, we are starting to see cheesy investment pitches like this one that are designed to get you on the investment bandwagon (after you fork over at least $1k) to hear about their “hot little stock (spoiler alert: the company they are talking about is Greenland Minerals and Energy; you can thank me later for saving you the money). The pitch also refers to a metal — vanadium, though the voice-over repeatedly pronounces the metal as “vanandium.” Well, that never bothered some people, so, anyways…
Look, I didn’t seek to go out and write a piece talking about a frothy rare-earth metals market. In fact, MetalMiner has covered the rare-earth sector in earnest for over two years now. We believe there is a critical rare-earth shortage that must be rectified so that all of us can continue to enjoy the iPods, Prius cars and defense technology so vital to our security. We aren’t suggesting that the sector is not worth investing in (in fact, we’re sure people are going to make a huge killing on the sector). I’m just calling it like I see it frothy. Truthfully, we’re finding it difficult to identify new angles and new stories on the rare-earth markets that haven’t been previously covered, ad nauseam.
That said, a colleague forwarded this piece from Wealth Daily (which linked to the cheesy stock pick pitch that got me sidetracked) with one very interesting comment in it: “Just days after China announced it was cutting off rare earth exports to Japan, Europe, and the United States, the WTO said it needs another six months to rule on the rare earth complaint issued against China. The move makes no sense. Under the WTO’s own rules, a panel is supposed to publish its dispute ruling within six months of being set up; since it was set up in December 2009, we should have seen a ruling by May 2010. The writer brings up an interesting point regarding the delay — this will continue to exacerbate any material shortages (though we have been unable to verify the writer’s claim about the WTO delay, which isn’t to say it isn’t true, just that we can’t verify it). Our own discussions with end-users of rare-earth metals suggest they are seeing rising prices, but as of yet, no actual material shortages.
In trying to verify the six-month WTO review delay, we did come across an extremely well written speech on raw material resource trade given by WTO Director-General Pascal Lamy, at the Third BDI (Federation of German Industries) Raw Materials Congress in Berlin on Oct. 26, 2010, where he argues that “carefully crafted cooperation on rules for resource trade is the only alternative to economic nationalism and conflict.
Lamy makes several interesting points and walks through an example of the current conflict over China’s rare-earth export quotas (note: we have refrained from using the word “ban, as this is currently in dispute):
“Say a government chooses to rely on an export tax to reduce extraction rates for environmental reasons, or to preserve resources for future generations. Other governments believe that this approach is inappropriate. They argue that the export tax creates a wedge between the domestic price of the raw material and its price in international markets. This price dispersion, in their view, bears two negative consequences. First, they argue that the lower domestic price of the resource may encourage an excessive level of domestic consumption. The result, in their view, is a trade measure that affects an inefficient conservation policy. Second, those who oppose the export tax argue that the increase in the international price of the resource lowers the welfare of foreign countries that need to acquire raw materials on world markets.
This conflict will not be resolved in any post we can write. But it sure does highlight the argument in a more rational way than we have seen previously.
As for rare earths being a bubble market, what do you think? Leave a comment!