Commodities Class: REE's
Okay guys, I promised to focus a little bit more on commodities and energy over the next few days, so here we go...
Ideally, I want to use this mini-series as both a crash tutorial for the Energy Rodeo guys, as well as, a pulpit for us Macro Guys to rant about the importance of often ignored commodity markets and their effects on the economy, as a whole.
Naturally, I hope to see some discussion and argumentation. Keep it civil boys and girls...
Topic #1
Rare Earth Elements
REE's, better known as Rare Earth Elements have been big in financial news as of late, though I have spoken to more than one old school commodities trader who had never heard them mentioned until recently.
As the more astute data extrapolation specialists among you have already gathered, China's increasing role in global macroeconomics might have something to do with this.
By name, Scandium, Yttrium and fifteen different lanthanides (look'em up yer dayum self!) make up the category, which is crucial in the manufacture of high-tech products.
It should come as no surprise that with the (predicted) fallout of QE2, China has announced severe cutbacks to REE exports for 2011.
This issue posses several interesting questions, for me.
Namely...
Is this merely a tactical/political ploy?
How will non-Chinese high-tech manufacturers be affected by this decision?
Is this actually a counterproductive maneuver on China's part?
How can/will other commodity markets react to this decision?
As I have stated before, I think 2011 is the year commodities return to economic prominence, not on an individual basis, but as an asset class.
A few of my thoughts...
Your turn...
Weird how China is "trading in and out" of its stance on rare eaths. Molycorp's new mine will be a joke compared to what China is pumping out. It would be pretty funny if China flooded the market the moment MCP's mine is operational.
GoodBread If they flood the market, the price goes down and China loses money... China whether you like it or not need more and more high-end gadgets, and that is what REE's are mainly used for. Supraconductive magnets, LCD displays, ipods, weapons, etc. That is wy governments from all over the world now see China's dominance of the REE market as a national threat.
I wouldn't be surprised to see all REE's continually hit new all-time highs in 2011.
If you are traders/investors, I suggest you look at REE exploration companies who are trading on the TSX of the TSX Venture exchange and that are close to listing in the US.
One that comes to mind is Rare Element Resources. In August 2010, it was trading at about $3.00 and guess where it is right now? Since listing on the NYSE Amex on August 17th 2010, it is now up 500% and trades at $15.30. Now that's HUGE.
One stock tat will likely be trading in the US soon (on the OTC i think) is Medallion Resources - MDL. now trading just above $0.50. I can only imagine what this listing would do to the SP... Just grad I'm in since $0.19
Let's hope for a continued run up in REE prices!!! Cheers
I agree (says the Canadian Mining Investment Banker).
Awesome! +1
I don't think the REE segment has been climbing due to demand factors. The exposure of the sector has been increasing due to export cuts, and I believe those two factors account for the majority of the advance in prices. I don't think China will flood the market, but any loosening of export restrictions will disproportionately hurt producers outside of China, which are the ones the retail US investor are primarily exposed to.
midas, read this paper. Or skim it. I agree with you wholeheartedly - commodities are trading more closely than ever before and, failing a fundamental supply shift, will continue to do so. Some say it's spec buyers & just a bubble, other say these price levels are more permanent. I'm in between, but leaning to the latter.
http://www.princeton.edu/~wxiong/papers/commodity.pdf
Can't offer much on REE's, too thinly traded for them to be in my book of biz, but if you start talking green coffee, tea, natural rubber, cotton, natural gas, or steel - I'm all ears!
Suggestion for round two, would be interested in hearing the community's thoughts on Natural Gas basis volatility - gone for good? or just on hiatus?
Producers outside of china are virtually non-existant... China represents 97% of the global rare earth element production. That's why REE stocks are exploding, so to speak. An REE ETF created in October by Van Eck Global also most probably help share prices..
You're right. In my opinion prices aren't yet climbing due to demand, but with China and India, amongst others growing at such a pace, it's only a matter of time before demand surpasses production. This can only help sustain these prices
REE is a great speculative play. But any investment which is based on political pressures and positioning can end up badly (i.e. China reverses itself because of a slowdown in growth).
For anyone with significant exposure to China, read this for the coming year: http://mpettis.com/2010/12/chinese-growth-in-2011/
As a background this guy is probably my favorite and one of the best thinkers about China/emerging markets.
Can anyone please list a couple (or all, preferred) of companies on any U.S. Markets? Maybe provide a link.
My focus is Palladium, however, looks like REEs is where some significant gains will be sitting.
This thread has served as my primer to the REE stocks. I have been watching a couple of them for a few months now within the past few weeks I have noticed a change in how they are trading. In general they seem to be the new momentum plays. Someone made a comment today that "game is getting old when poeple scanning yahoo finance for anythign that says china and metal". MCP has had some pretty intense swings this week. That is the main one that I follow. Know next to nothing about the space just see them making highs every day.
@pitbul13, GoodBread - Good points; supply/demand mix is still developing. China is cutting exports quotas in 2011 while cracking down on Chinese "rouge miners" who may be selling the metals w/o the govt's knowledge. From the demand side, companies like Sumitomo and Hitachi are racing to secure metals partnerships/contracts/JV with any miners (MCP, ASX:LYC) to meet consumer demands for blackberrys, ipods, etc.
Don't believe a word the Chinese government says, they'll change their export quotas/forecast 15 times while they use rare earth quotas as a political bargaining chip. Some may call it a bubble but who knows/cares, I see shrinking supply from a country producing 95% of the world's REE exports and steadily growing demand for usage in tech products that won't ever fade.
@Khara - best US REE play is MCP. Look LYC is schedule to be first (MCP next) miner to be "on-line" for REE production. Others include AMEX:REE and AMEX:AVL. If you're looking at the charts now....yes you missed the run-up. There will be other buying points but I would recommend checking out the Rare Earth/Strategic Metals ETF (REMX); holdings: http://www.vaneck.com/funds/REMX.aspx
A good primer on the rare earth industry: http://portfoliotilt.com/speculator/stocks/542-your-guide-to-the-rare-e…
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