Stocks of several rare earth mining companies have been experiencing major gains since Monday when that the United States said it may create a strategic reserve for the metals. The reserve would help boost demand that has been waning as companies attempt to out engineer the need for the metals. Efforts by the Chinese government to limit supply and stabilize prices alongside the decision by the largest rare earth mining company in the world, the Inner Mongolia Baotou Steel Rare-Earth (600111.SHA), to suspend its smelting and separating operations for a month has previously shaken the industry.
China Shen Zhou is the Big Winner
China Shen Zhou Mining & Resources Inc. (SHZ) saw the biggest boost as shares with an increase in value of over 30 percent that held into Tuesday. Other major gainers since Monday included Avalon Rare Metals, Inc. (AVL), up nearly 19 percent, Rare Earth Element Resources Ltd. (REE), up nearly 12 percent, and Quest Rare Minerals Ltd. (QRM), up over 22 percent. Smaller cap rare earth companies have all seen major growth since the October 18th announcement from Inner Mongolia, as their market share increased in the absence of a major competitor. China Shen Zhou is up 60 percent over the last month, while Quest is up nearly 37 percent in the same time period and Rare Earth is up almost 40 percent.
Need for Rare Earth Supply Could Create Reserve
The move by Inner Mongolia was only the most recent chapter in the ongoing drama surrounding the global rare earth metals markets. China produces 95 percent of global rare earth output despite holding only 30 percent of global reserves, giving it a hammerlock on the industry. This meant that when the Central Government opted to reduce its export quota by 37 percent in an effort to prop up global prices last year, the ripple was felt across the world. When Inner Mongolia rocked world markets again with their October announcement, it further demonstrated the need for viable sources for rare earth metals outside of China. Two congressional sources have since told DealReporter that there are now calls for an American strategic reserve of rare earth metals, with Inner Mongolia’s surprise announcement serving as a “wake up call.” The Department of Defense, which uses rare earths in a variety of capacities, ranging from global positioning technology to guidance and control systems, is interested in having access to a supply of rare earth metals that isn’t so dependent on China or global markets.
Rumors of the reserve have helped to bolster the market, potentially creating a new source of demand and helping to keep prices up. This also comes as a number of new non-Chinese pure-play rare earth mining companies like Molycorp (MCP) and the Australian Lynas (LYC.ASX) are ramping up production to take advantage of Chinese attempts to manipulate the global markets. It’s entirely possible, though, that the United States will delay plans for the reserve in the near future, speculated Donald Ranta, CEO of the Colorado-based Rare Element Resources, to the Financial Times. He believes that the injection of such a big new market player might further exacerbate the current shortages outside of China.