Rare earth stocks are at their recent lows with some of the big names like Molycorp. (MCP), shedding 45 percent in the past three months. From a technical standpoint some of these stocks are looking like buys, but a major shift is taking place that could keep them from recovering in the near future. China’s announcement in July 2010 that it would limit exports of rare earths caused a boost in prices. Rather than swallow the higher prices though, some of the biggest customers began innovating new ways to get by without it.
Toyota and General Electric Co., both announced plans to reduce the amount of the materials used in their cars and windmills according to Bloomberg, a shift that is likely to significantly weaken demand for rare earth metals.
In the last three months alone the Bloomberg Rare Earth Mineral Resources Index plummeted 43 percent. The next several months and years are likely not to see a reversal, but a continued decline, as more and more companies engineer the rare metals, used in permanent magnets, out of their own designs.
Given that two companies have already exhibited their ability to function without the use of the metals, it’s likely that many more will follow and the demand will fall. Naturally prices will drop regardless of the short rope they’re being offered on from China, (which is responsible for 90 percent of the available metals).
With this in mind it appears as though the losses for Rare Metals are likely to continue in such stocks and exchange traded funds as:
Market Vectors Rare Earth/Strategic Metals ETF (REMX)-Down 20 percent for the year.
Molycorp. (MCP)-Down 33 percent since this time last year
Cameco Corporation (CCJ) –Down 33.47 percent for the year.