Thursday, September 9, 2010

Rare Earth Metals: "Chinese Institutional Investors Look At Rare Metals Overseas" (AVL.TO: LYC.AX; MCP; UCU.V)

By Jack Lifton via Technology Metals Research:
I’m in Shanghai today; I was in Beijing yesterday, I will be in Tokyo tomorrow and Hong Kong next week. I am teaching a course on rare metals that I put together for CLSA, Asia’s pre-eminent brokerage form. CLSA’s clients are my students. I do not presume to give investment advice to the likes of China Asset Management, China Investment Corporation, Manulife TEDA Fund Management Co.,Ltd, or Harvest Fund Management Co., Ltd; however, I do explain the details of the new asset class of rare, technology, and minor metals, in which they have an interest. I also explain how the rare metals market fundamentals and future use trends are related to, and different from, those of the older and obsolescent categories of base and precious metala.

There is no doubt that Chinas’s growth rate cannot be sustained by its domestic production of natural resources.This is painfully obvious to Chinese corporate procurement officers. It is only now becoming apparent to Chinese domestic institutional investors. As just one outstanding example, I note that China consumed 6 million tons of copper last year out of the world total production of around 16 million tons. Importing 5 million tons of copper cost the Chinese economy some 40 billion dollars. Thank goodness, Chinese bankers tell me, for the export market for finished goods and services.

I emphasize in my ‘course’ that if China’s growth rate were to continue at 8%, then its demand for all metals, current at 53-56% of all metals produced in the world, could shortly rise to a level where the existing productive capacity of the world’s metals economy cannot increase any further, due to capital, equipment, and skilled personnel limitations of availability. When this point is reached, the first result will be an intense commodity price inflation the likes of which the world has never seen. This would of course in the long run be demand-destructive, and prices would ultimately crash in a world-commodities, price-led recession, but the economic and political danger of such a series of events is sobering and a little frightening,...

...America’s needs for light rare earths will be oversupplied by Molycorp as will Australia’s by Lynas in a massive way. For the heavy rare earths, America’s needs can be meet and exceeded  by Ucore Rare Metals and Rare Element Resources. The needs of China, Japan, Korea and India for heavy rare earths can be met by the Canadian and African operations of Great Western Minerals Group, the Canadian operations of Avalon Rare Metals or Quest Rare Minerals, and the southern African operations of Frontier Rare Earths and Tantalus Rare Earths....MORE
As we mentioned yesterday, the premier Chinese producer, Inner Mongolia Baotou Steel Rare Earth Hi-Tech Co. was limit up (10%) in a wishy-washy Shanghai market.

See also:
Rare Earth Metals: Stocks and a new ETF (AVL.TO; NEM.TO; QRM.X)
Here are some of our other rare earths posts.