China Throws Rare Earths for Another Loop

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"Dubious plans?"

China & REEsChina's grip on the rare earth element (REE) market has been present for years, but not until last year did it become a national story of how important these elements were. Now, word out of China is that the country is building strategic reserves of the "not so rare" elements as the rest of the world ramps-up production. The timing is a bit curious, considering Molycorp and Lynas will be producing product within two years. Junior miners like Avalon Rare Metals Inc. (TSX:AVL; NYSE.A:AVL; OTCQX:AVARF) and Rare Element Resources (TSX.V:RES; NYSE.A:REE) are years away from production, but even a few of these miners could take a dent out of demand.

Reserves of REEs are a hot topic outside of China as nations try to determine if Chinese supply cuts will lead to a manufacturing slowdown. Japan and South Korea have some reserves and the U.S. is at least considering the idea. With control of the market already, I have to wonder what the end game is for China.

Dubious Plans?

China has put REE miners out of business before by flooding the market with product. Could it be at it again?

Last year, China helped push aluminum prices down by releasing some of its aluminum reserves. No one knows how the country will manage REE reserves, which only adds more questions to rare earth stocks going forward.

China definitely likes stability and a reserve of REEs would give it another way to control market prices and supply. Investors will have to watch REE export levels, demand, production and also how well reserves are building at the national level. If the last six months hasn't been interesting enough for rare earths, we should be in for many more surprises in 2011.

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