I think the concern about falling RE prices is real, but let's...

I think the concern about falling RE prices is real, but let's have a look at the market more closely.

Demand:
REs are used in a tremendous variety of applications, most importantly in green and hi-tech industries. It's widespread use was because of its superior properties and its cheapness (before the quotas were lowered). They are now an integral part of green and hi-tech strategy. Countries with no access to REs lag behind countries who do in terms of their technological innovation.

Demand for REs will fall if the world's largest economies stall into recession. But giving up on REs is akin to giving up on technological advancement. Innovation is still important in slow times. The world is addicted to it. Demand will be there.

Supply:
Supply didn't even deserve a thought before China lowered quotas and bared to the world the strategic value of REs. The world knows what China can do, and so there's a strategic reason behind creating ROW supply. For China to renege on its quota policy and restore RE supply, especially in this climate, is unfathomable. Not only does this require them to neglect the environmental damage, the severe loss of face on the international arena, the continued depletion of a strategic asset, and the giving up of a huge advantage for domestic hi-tech manufacturing, but also remember that China has shown its hand. If it opens up quotas what will foreign countries do? They'll buy it up in truckloads to build stockpiles. China's had a lot of difficulty in buying RE projects/deposits in foreign countries, so it knows that once it depletes its own, IT will be the one facing supply shortages. It makes no sense that the Chinese would open up quotas again so that the Mt Weld basket price falls back to 2010 levels.

The fact that RE prices are falling a bit is fine. We all expected it. Many comments on HC have pointed out that the LT dynamics of the RE market will not support prices as high as what they were recently. That's why business model and strategy are so important. LYC is the first mover, it is vertically integrating, and it is in a politically stable location. In fact, I'd be more worried if RE prices formed a huge bubble. High RE prices encourage substitutes. Imagine the damage if the bubble burst from a higher base.

Of course, rising costs and falling RE prices squeeze LYC's margins. But if that's the case for LYC, imagine what it will be like for MCP and all those miners coming online in 2-5 years? LYC's first mover advantage here is all the more important. Why? Because it makes Lynas the bellwether of the future of the rare earth industry. If the market is losing faith in LYC, it is losing faith in rare earths. And that just makes no sense to me.