Sunday, October 17, 2010

"Japan Scrambles for Rare Earth" (AVL.TO; LYC.AX; MCP) 600111: Shanghai

...Words like "uranium", "rare earths", etc. seem to be magic to
 those unsuspecting who are often fleeced...
Gerald M. Loeb
The Battle for Investment Survival
Simon & Schuster, 1935

I'm getting a bit creeped out by all the attention focused on the Rare Earths. Unless one is trading on material non-public information it is probably prudent to stick with the larger producers, the big daddy being our old pal Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co., Ltd., symbol 600111 although it has better than doubled in the last six months.
As the quote ascribed* to Mark Twain says about mines:

 "a hole in the ground owned by a liar."
If you are dead set on wild-ass speculation here are some of the names:
Rare Earth Metals: Stocks and a new ETF (AVL.TO; NEM.TO; QRM.X)

From the Wall Street Journal:
Tokyo Seeks to Sidestep Reliance on Uncertain Supplies From China; Issue a Priority Elsewhere, Too
Alarmed by China's move to cut shipments of critical metals used by high-tech companies and auto makers, Japan is scrambling to find alternative supplies, particularly by developing new mines abroad.

Japanese companies have faced sharp cuts in imports of what are known as rare-earth metals from China since July, a situation that has deteriorated sharply since the two nations became embroiled in a thorny bilateral spat following a ship collision in disputed waters in the East China Sea last month. This has fueled anxieties in Japan, by far the world's largest rare-earth importer, as China has come to dominate the metals' world production with a 97% share, having priced out producers in other nations like the U.S. and Australia in the past two decades.
Because of the strategic nature of rare-earth trade, this has renewed the sense among Japanese policy makers that the government must play a bigger role in ensuring supplies of natural resources at a time when rapid developments in emerging economies intensify competition for industrial materials. Tokyo plans to allocate 100 billion yen ($1.2 billion) to improve rare-earth supplies in an extra budget for the current fiscal year through March this fiscal year, roughly half of which is earmarked for overseas mining projects. Research and development of alternative materials, as well as facilities to recycle metals from discarded computers and cellphones, will also receive funding.
This month, Prime Minister Naoto Kan agreed with Mongolian Prime Minister Sukhbaatar Batbold on a fast-track project to develop rare-earth metals in Mongolia. Exploration is starting this month. Similarly, Japan's Sumitomo Corp. is developing a mine in Kazakhstan.
Sojitz Corp., a trading company and one of Japan's largest rare-earth importers, estimates Japan will face a shortage of 10,200 tons of the metals next year if China keeps its global export quota at this year's level of around 30,000 tons. Japan is projected to use 32,000 tons next year, compared with 24,800 tons for the other nations excluding China combined, Sojitz says.
"Securing stable long-term supplies of mining resources including rare earths is one of Japan's important diplomatic goals," Foreign Minister Seiji Maehara said at a press conference this month. "We will work as a team to provide strong support for our private companies."

Such efforts, however, are complicated by a lack of clarity from China, which abruptly notified importers over the summer that it will reduce rare-earth shipments by 40% this year from 2009. It's unclear how long such cuts will remain in place, making it difficult for companies to determine whether to go ahead with costly new mining projects. The shortage is expected to last at least through 2011, until supplies from new projects begin to reach the market.
Earlier this month, South Korea said it will spend it plans to spend 17 billion won ($15 million) by 2016 as part of a long-term plan that seeks to secure 1,200 metric tons in rare-earths reserves, according to the Asociated Press. Despite their name, there are abundant global rare-earth reserves, including in the U.S., Canada and South Africa, experts say, but their processing is often expensive and dirty.
"The only real solution to the problem is to buy new mining rights overseas," said Toru Okabe, an engineering professor specializing in rare metals at the University of Tokyo. "But mines outside of China don't have cost-competitiveness. If China begins to flood the market with cheap supplies again, they wouldn't stand the competition."
Since China's latest cuts are concentrated in the second half of the year, its effects began being felt especially during the past few months. Japanese companies say the shipments have become severely restricted since late last month.
Government officials in China deny they ever ordered a halt in rare-earth exports to Japan. Instead, they have responded to criticism of the quotas—from the U.S., European Union and Japanese officials—by saying the system is needed for the sustainability of an industry that expanded too quickly and can be detrimental to the environment. Officials have also pointed to efforts to limit smuggling of the elements, including to Japan.
"What we pursue is to satisfy not only the domestic demand but also the global demand of rare earths. We should not only stand from the present, but should also look forward to the future," Premier Wen Jiabao said earlier this month.
In late September, China customs agents appeared to drag their feet at the nation's ports in examining all goods on the Japanese routes. Some trading firms say inspection activity began returning to normal after a weeklong holiday this month. Japanese officials say, however, disruptions of Japan-bound shipments at customs continue, and have even hinted they may take the case to the World Trade Organization. A spokesman for China's Ministry of Commerce said Friday China's rare-earth restrictions on rare-earth exploration, production and export are consistent with international regulations.
One factor that may underlie China's export controls is a belief among policy makers that the country's stock of rare-earth elements is being sold too cheaply. "China is the largest producer and exporter of rare earth, but it does not enjoy enough rights to set its price in the international market," Guo Chaoxian, a scholar at a think tank under the Chinese Academy of Social Sciences, wrote in a commentary published this week in state-run newspaper China Daily.
So far, the shipment cuts haven't had serious impact on Japanese manufacturers thanks to their stockpiles that can last for anywhere from a few months to a few years.
Japan isn't alone in searching for ways to supplement China's output or sidestep global reliance on an uncertain supplier.
Rare earths include a number of different elements, that are usually mined at the same mines but are used for different purposes. One particular element facing surging demand is called dysprosium, a magnetic material used in motors for hybrid cars and for magnetic disc drives for personal computers.
Shortages are likely to ease starting from 2012, when production from new mining projects starts. Sojitz and another Japanese trading company, Toyota Tsusho Corp., are studying a project in Vietnam with the Japanese government funding the cost of environmental protection in the area. MORE
* "This quote was attributed to Mark Twain in The Autobiography of John Hays Hammond (Farrar & Rinehart, 1935), p. 97. Although Hammond knew Twain personally, there is no other authentic record that Mark Twain made this statement" source
Which also has this tidbit:
...and so he came on the stage with me and introduced me in this way. He said:
"I don't know anything about this man, anyway. I only know two things about him. One is, he has never been in jail; and the other is, I don't know why."
- Speech, 1908