Have a look at today's MiningNews.com? The 'dryblower' article is quite interesting??
See Below:
Dryblower on the pricking of a bubble
Monday, 1 November 2010
DID you enjoy the rare earths boom of 2010? Hopefully it was fun because last week Dryblower saw unmistakable signs on the political and consumer fronts that we are either at the peak of the boom, or soon will be, with a sharp downward slide ahead. The most obvious evidence was on the Australian stock market where the share prices of the leading rare earth stocks fell with a bang in midweek trading.
The cause of the big correction, which saw shares in Lynas Corporation fall by 21% over two trading days, Arafura Resources fall by 30% over three days (partly as a result of a big share issue) and Alkane Resources fall by 35% over four days, was a series of international political developments.
The most important was a meeting between US Secretary of State Hilary Clinton and her Chinese counterpart, Yang Jeichi, on the sidelines of the East Asia Summit in Vietnam?s capital, Hanoi.
It was in a cosy chat between those two power brokers that rare earths took centre-stage because of fears that China was using the exotic material essential in a wide range of advanced technologies as an economic weapon.
Not so, said the Chinese foreign minister. China would maintain an orderly, albeit diminishing flow of the odd elements, such as dysprosium, neodymium, cerium and yttrium, but was also keen to see the western world develop its own supplies of the stuff.
It will be interesting to see if China keeps its word but with the global economy in a fragile state, and everyone working hard to avoid a currency war becoming a full-blown trade war, it seems likely that China will maintain a flow of rare earths.
Over the weekend more air escaped from the rare earth bubble when the US military surprised observers of the industry by saying that China?s near-monopoly of global rare earth production did not pose a threat to national security.
Until the Pentagon let that assessment slip in leaks to leading local media outlets it had been argued that military demands would form a key plank in a long-run boom for rare earths.
In fact, what the Pentagon said was another nail in the coffin of the boom because it also concluded it would like to see a resumption of domestic production of rare earths and might consider offering financial assistance to America?s great rare earth hope, Molycorp, which is working towards reopening the Mountain Pass mine.
Like all commodity booms, or bubbles if you prefer that description, the rare earth event has been driven by a combination of factors, some long-term and real, some short-term and quickly overcome.
Older readers might remember that the original nickel boom of 1969 was driven by just such a combination of rising Japanese demand for steel-making raw materials, and a strike by Canadian nickel miners.
It?s same this time. There is a genuine increase in demand for rare earths, and there is a short-term catalyst in the form of China playing games with exports, either by cutting back on quotas issued to trading companies, or by punishing Japan for arresting the captain of a fishing trawler who rammed a couple of Japanese coast guard vessels.
But the fact which convinces Dryblower that this year?s rare earths boom will be a short-lived affair is the most elemental force in business ? supply always rises to meet demand, and in such a thinly traded commodity group as rare earths it will not take much to achieve over-supply.
From next year, Lynas will start producing 11,000 tonnes of rare earths annually; this number looks small but actually represents 7% of world consumption.
A second stage of the company?s Mt Weld mine to 22,000 will see that single project account for around 12% of expanded world consumption from 2013.
Molycorp, which seems likely to win a $US280 million loan guarantee to help finance the re-opening of Mountain Pass, is expected to be about the same size as Mt Weld and be back on line by the end of 2012 ? two years from now.
As with all commodity bubbles there will be legs left in this one with share spruikers running up their favourite stocks, such as last week?s darling, Territory Uranium.
But, the main reason rare earths will be in the news in two years time will be because of a rising production surplus and falling prices.
TUC Price at posting:
35.0¢ Sentiment: None Disclosure: Not Held
