China Ups the Ante in the Rare Earths Game

In the midst of the longest commodity boom since 1997 (see below), the hottest commodities right now are, alas, without a corresponding ETF.

Nor can sophisticated investors trade it in the futures market. But there is a way you can still make money in what appears to be an aggressive uptrend:

Price Per Kilogram of Select Rare Earth Elements

The blue line represents the price of neodymium – used in everything from portable headphones to hybrid cars. The red is samarium – an essential metal for precision-guided missiles.

Both are rare earth elements – under the tidy production grip of our friends in China. You’ll recall China slashed rare earth export quotas 35% at the start of this year… on top of a 40% cut six months earlier. World prices for many of these minerals have doubled in 2011… on top of a fourfold increase last year.

New developments make it look as if this trend is with us to stay…

As we’ve been detailing, one after another, attempts to break the Chinese stranglehold are smacking head-on into obstacle

  • Lynas, an Australian firm, and a former Byron King favorite, attempted to open the world’s largest rare earth refinery in Malaysia but ran headlong into stubborn regulators. An operating permit is being withheld as protesters raise alarms about the rare earth ore’s radioactive contamination – which is naturally occurring, and low level. Approval has been delayed six months
  • Toyota’s running into its own regulatory roadblocks trying to partner up with companies to mine and refine rare earths in Vietnam. The deal was announced last fall, but now production won’t get under way till 2013
  • In Japan, Dowa Holding’s attempts to recycle rare earths from old electronics is proving more difficult than first thought. Its factory is up and running, recycling 19 metals – but no rare earths.

The Chinese have even upped the ante again too. As of April 1, new taxes on rare earth miners were imposed. What used to cost producer 50 cents per kilogram of refined product now costs $8.

Addison Wiggin
for The Daily Reckoning

The Daily Reckoning