Special Report on Rare Earths: Ten years from now, They, the Chinese, will own everything!

I have been a keen observer of commodities for over 40 years, I have seen the Hunt Brothers’ play for a Silver monopoly back in the late 70′s (I even knew Bunker Hunt); the Gold collapse of the early 80′s; the Copper run-up between the 80′s and 2000′s; the Uranium Boom/Bust; plus a number of other major events that made and broke fortunes across the Planet.

So, now let’s talk about China, and what they are doing to the global metals industry. It is not news to me; I have been observing it since Y 2004.

The Big Q: What are they up to, and should we all be concerned?

The Big A: Yes.

Nobody that I know personally is concerned (though they are alerted to this action) enough about the recent moves the Chinese government is making in regards to some of the most important metals known to modern industry.

This is a overview of what is going on Worldwide in the World’s fastest growing economy: it has bought up a majority of they most critical and strategic earth elements without any worthy protest from any Western government or Corporation:

It all began with rare earth elements and lithium in the early 90′s. Rare Earth elements are essential in small quantities to almost all electronics, but required in large quantities for the production of high-capacity batteries, i.e. those that go into every Hybrid motorcar on the road today, Rare Earth elements are destined to become the “new crude oil” in a post-fossil fuel world.

And the mining companies that produced these metals were to China as oxygen is to life.

By the time their 15 yr buy-up was done, sometime in late Y 2009, the Chinese had gained control of about 97% of the world’s known Rare Earth deposits.

As their monopoly began to rise to its current level in the first years of this 21st Century, prices for Rare Earths and Lithium rose too.

Now in the past five years, Neodymium (another rare earth used heavily in rechargeable batteries) has risen about  400%. Yes, a huge move,and it is all down to the Chinese buy up and needs.

Couple that with the rising consumption and price response, and one might rightfully surmise that the ultimate aim of the Chinese plan is gradually cause Western dependence on what is increasingly a Chinese product, and the price controls that will follow. They have done it before with the cheap plastic products that come to the Western shores daily.

The focus now is the raw materials needed to keep TVs and computers working, motorcars running, and precious electrical energy safely stored.

But, hang on that’s not all, as if having the edge on Lithium, Aluminum and Neodymium were not enough, there is a new Target for the World’s largest producer/user of Steel, it is Molybdenum (that was the basis for the super go fast powder we used to on our racing sail boat, Nip’nTuck, a Douglas Mac Cloud Thistle #447).

Did you know that since Y 2004, China’s been the World’s dominant Steel producer?  Perhaps you did…

Here is the skinny, with the annual production capacity of the next 3 biggest producers, the EU, Japan, and the US combined, just over 1 out of every 3 pounds of Steel used for construction or manufacture comes from China.

That may not be news to you, but you likely do not know is that a Key component to lots of steel alloys, namely stainless and construction steel, Molybdenum, may just ignite a big shortage in Steel.  And just as they have done with Rare Earths and Lithium, the Chinese are positioned to keep much of the World’s supply  under their direct control.

What is Molybdenum (muh-lib-dih-num), well, the 1st known use was in the legendary curved blades of Japan’s Samurai Warriors, and ever since then it has been an integral component of Steel alloys that resist strain, pressure, high temperature, and torque. This includes everything from engine blocks, to Crude Oil pipelines, to nuclear reactor cooling tubes, to aircraft wings, and on and on and on…all of these steel products contain between 2% and 20% Molybdenum.

The Chinese early on realized this, and have become net importers of strategic metal for the first time ever.

Net importers means that when mentioned in the same sentence as China, is a signal for instant anxiety for anyone in need of steady, low prices in a given material.

What is one to expect in this scenario?  Well, since the major global suppliers of Mo (http://en.wikipedia.org/wiki/Molybdenum) replenish only 88% of the molybdenum consumed in Y 2010, JPMorgan expects prices to rise as much as 120%.

The Chinese are in the largest continuing building Boom in history and are producing molybdenum-laden steel at a rate of 500M tonnes per year, USA produces about 93M tonness annually, that 12% deficiency is expected to grow to a 38% deficiency within 5 years, which will likely result in the doubling of the price again.

What are the implications of all of this, and, of course, the opportunities presented in this industrial element deficit?  The fact is molybdenum exploration mining can, and likely will, become The Growth Industry of the  the 1st half of the 21^st century.

The fact is that the highly specialized, high-stress steel applications coming to production each year, the market for non-molybdenum steel alloys is declining in relation to alloys dependant on the ingrident.

Add that to the Chinese appetite for the material expanding faster than the nation’s economy, domestic steel production may hit 596M tonnes in Y 2011, a 19% increase), prices can only go North.

The above is not our Theory at LTN, the pattern is established and has been for more than 15 yrs or so.

Having said all of that, we expect that North American mining companies, for the first time in many years, are starting to do what they have been forced to do to when deal with shortages in other essential and Key areas, Explore.

And yes they have started to Explore, they have started to execute drill tests, they have started to look for ways to become independent of the Chinese campaign for price control. Most importantly, they have started to look for Venture Capital that would keep them independent of Chinese control.

Heffo and I believe that there simply is no other choice, not for the companies, not for the western economies that each year becomes more and more reliant on Chinese steel, and certainly not for the consumer.

We are looking for opportunities in this sector and will report them in our Hot List Section as they arise. —Paul A. Ebeling, Jnr. www.livetradingnews.com

Posted by Shayne Heffernan on May 10th, 2010and filed underBRIC, The Hot List, USA.You can follow any responses to this entry through theRSS 2.0You can leave a response by filling following comment form or trackback to this entry from your site