China vs. the Rest of the World


"While supply is low, demand is getting shriller."

Increasingly (at the risk of using a bad pun), rare earth metals are becoming not so rare in the rarified world of geopolitics. The sector, sooner than later, is likely to spark off a new global policy issue.

President Obama may have asked China on his recent visit, to play the role of a super cop in Asia, but he should also have asked the Chinese to clear the air on the rare earth metals sector.

In an investing world gone metal crazy, the rare earth metals sector is one that stands apart for its 'Made in China' sticker.

As much as 90% of the world's total supply of rare earth metals is under Chinese control.

This is predictably making everybody involved very nervous.

While supply is low, demand is getting shriller.

Obviously, the U.S. is jittery. Suddenly, some very rare metals—and not Al Qaeda—are at the center of brewing geopolitical tensions involving military issues.

What gave the U.S. and the other countries more of a fright was the recent rumor that China was on the verge of restricting exports of the more difficult-to-find rare earths like terbium, europium and dysprosium.

The whisper campaign is enough to have set the proverbial cat among the pigeons. So the cat had to react. On November 3, President Obama signed the U.S. National Defense Authorization Act for Fiscal Year 2010, mandating the General Accounting Office (GAO) to conduct an assessment of the rare earths used in U.S. Department of Defense (DOD) supply chains.

The GAO is expected to report back to the executive branch by April 2010.

Any rare earth metals exported from China or produced outside of China will be sold for much higher prices in the non-Chinese market. Such dual pricing would mean huge profits for Chinese producers of rare earth metals.

Only those miners such as Canada's Great Western Minerals Group [GWG.V] and who have high concentrations of the heavy rare earths and/or are vertically integrated, stand to be the mining beneficial.

So, the way things are moving in the rare earths sphere, followers can expect some fireworks (Chinese or otherwise) in the months to come.

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