REE Increases Inevitable?
Source: MetalMiner, Stuart Burns (7/20/10)
"There is only one direction prices will go—up."
Now banks and investors outside the industry are interested in the sector as Reuters reports. "It reminds me of a small version of the platinum group metals (PGMs) industry, where PGMs were a pretty mundane metal. . .but then the world pushed very heavily for widespread use of catalytic converters," said Rob Edwards of Russian Renaissance Capital Bank. Its interest is plain to see, therefore, they see price rises on the way.
Western production of REEs dwindled because Western producers could not compete with the China's low prices and its widespread availability of material. China's cost of production was way below Western mines, and its plentiful supply left no place for them.
Today, investors realize annual demand is increasing by 15%–20% and supply is constrained by China's export quotas; thus, Western suppliers will only become viable with higher prices. Projects that look marginal today hold the potential to be very profitable a few years down the line, as prices have to increase. Strangely consumers are not voicing widespread concern about this; their principal issue has been one of security of supply rather than price. Maybe that's because for most applications, REEs represent a small (admittedly irreplaceable) portion of the overall cost. But surely if supply is being constrained and demand is continuing to rise there is only one direction prices will go—up. It has to go up if funding is going to be raised to bring these projects onstream. Unfortunately, this combination of constrained supply, rising demand and relative indifference to price rises will inevitably result in price rises as consumers outbid each other for supplies. An REE ETF anyone?