In our Jan. 6 post "UPDATED: Rare Earth Mania: What the Heck is Molycorp Worth? (MCP; SHZ; REE; AVL)" I repeated a thought first presented the prior week:
...My short side radar is starting to glow. The perfect play for the Chinese would be to maintain a very tight supply to Japan and the West until MCP, Lynas and REE go into production and then crash the market.We got a three-week triple out of the puts: "Rare Earth Mania: The Coming Opportunity for Buyers of Molycorp Puts (MCP)".
There is currently no way to figure discounted cash flow values for these mines so folks are taking proven, probable and even possible reserve numbers, multiplying by their favorite integer and then forgetting to discount back. That spells opportunity to those panthers sharp enough to wait patiently in the tree until the moment comes to pounce....
Here are two versions of Goldman's thinking, first up, MarketWatch:
Rare earths to swing to surplus by 2013: Goldman
A global deficit in supply of rare earth elements is likely to peak this year before moving into surplus by 2013, according to Goldman Sachs analysts.
In a research note Thursday, analyst Malcolm Southwood said the world was likely to see a deficit of 18,734 metric tons of the metals this year, equivalent to 13.2% of demand, before slipping into a surplus in 2013 which will rise to 5,860 tons the following year, or 3.2% of projected demand.
However, prices will likely continue to rise, the bank said. "We envisage that the market for rare earths will remain in severe deficit in 2011 and 2012, and that prices will trend higher over the next 18 months. We envisage a closely balanced market in 2013, and modest surpluses thereafter--at least, for some of the more abundant light rare earths--with some price softening in the 2013-2015 period."...MORE
Here's another outpost of Rupert's empire, from the Wall Street Journal:
Rare Earths Seen Growing Less Rare
Demand for rare earth elements that has driven up prices more than tenfold since 2009 is likely to be met by a surplus of supply by 2013, as Western companies start up new mines to compete with the Chinese firms that now dominate the market, Goldman Sachs analysts predicted Thursday.The forecast calls into question the sustainability of the current boom in rare earths, a suite of 17 elements used in products from high-powered magnets, and fuel refining to energy-efficient light bulbs and mobile phone screens, as well as the shares of companies seeking to produce them.
Prices of rare earths hovered between $5 a kilogram and $20 a kilo from the early 1990s until 2010. But a 40% cut in export quotas by China, which accounts for 90% of global rare earth production, sent prices soaring. The basket price of rare earths held in Lynas Corp. Ltd.'s Mount Weld deposit in western Australia—the largest non-Chinese mine, due to come to production in the next few years—has jumped to an average of $162.66 kilos from just $10.32 kilos in 2009.
Goldman's view differs from that of miners. In a presentation last month, Lynas forecast that global demand for rare earths, which include neodymium, cerium and lanthanum, will outstrip supply by 35,000 tons this year and in 2012. Annual supply shortfalls of around 20,000 tons are expected in 2013 and 2014, it added. It predicted long-term prices in the $120/kg-to-$180/kg range....MORE