Rare earth: the next big commodity opportunity?By James...

Rare earth: the next big commodity opportunity?
By James Phillipps | 07:01:00 | 05 March 2010
Rare earth may not sound a sexy investment, but with China controlling 97% of the worlds production and threatening to tighten supply, billions is set to be channelled into finding new sources of these crucial chemical elements.
The names of the 17 rare earth components, which include yttrium, europium and dysprosium, may not be familiar but they are vital to many renewable and clean energy technologies, such as wind turbines and catalytic convertors, along with more conventional technologies such as fibre-optics and batteries.
The rapid growth in their usage as the world looks to move away from a reliance on oil has seen demand surge from 40,000 to 125,000 tonnes a year over the last 10 years and it is predicted to reach 200,000 tonnes per year by 2014.
In the 1980s, the US was self-sufficient, but the closure of its Californian Mountain Pass mine following environmental problems and China ramping up production meant that by 1999, some 90% of US industrys supply came from the Far East and this reliance has continued to creep up.
The significance of this near monopoly has not been lost on the Chinese with former leader Deng Xiaoping saying back in 1987: The Middle East has oil, but China has rare earth.
Neither has the irony of trying to move away from a dependence on Opec for oil to an even heavier one on China for rare earth been lost on policymakers.
The situation looks set to get worse, however, after Chinas Ministry of Industry and Information Technology submitted a six year plan to the State Council to tighten exports and safe-guard its own supply.
The Institute for Energy Research has warned that by doing this: Chinese officials are forcing global manufacturers to move factories to China by limiting the availability of rare earths outside China.
GE moved its battery research plant to China in 2006 and more companies would be expected to follow suit.
Not content with its existing near-monopoly on supply, its state-run Chinese National Offshore Oil Corporation has being trying to buy up mines around the globe to consolidate its position. It has twice failed to buy the Californian mine and has also been rebuffed in its attempts to snap up mines in Australia.
The IEA says that outside of China, only a handful of projects are expected to produce rare earth in the next few years with MolyCorp Minerals looking to develop the Californian Mountain Pass mine and Lynas Corporation developing the Mount Weld mine in Australia.
As energy prices become more expensive, a lot more is going to be invested in developing rare earth mines, says commodity specialist Richard Lockwood, manager of the City Natural Resources High Yield Trust. It is difficult to imagine any new technologies that will not rely on rare earth down the line and the US government is offering huge amounts to companies that can discover new sources.
Rare earth is one of the strands of President Obamas green budget for the next fiscal year with huge incentives being offered.
Lockwood has been building up his fund's exposure to rare earth with Canadian firm Neo Material Tech among his top 10 holdings.
He says that the company is not cheap, but has the potential to deliver outstanding returns as the Chinese tightening of supply will squeeze up prices.
Where theres muck theres brass, as the saying goes and rare earth could up end being one of the top commodity themes over the next few years.