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Rare earth juniors may be heading for bubble - FT
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25th October 2010
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TORONTO ( - The Financial Times (FT) said at the weekend that fears of Chinese supplies being squeezed had sent rare-earths element companies' stock soaring, and experts warned this was turning into a bubble.

The FT compared the run-up in shares to the uranium market in 2006 to 2008, when the uranium price rapidly rose to an all time high of $135/lb, then collapsed, bringing many companies down with it.

"Most of those companies are now back trading at penny levels," the FT said.

"Six obscure junior miners, based in the US, Canada and Australia, now have a combined market capitalisation of close to $7-billion, even though none of them yet mine any rare earths. The total value of rare earths traded in a year is about $2-billion," the publication noted.


Meanwhile, US economist Paul Krugman last week lashed out at China's handling of its rare-earths element monopoly and urged the rest of the world to develop supplies.

In an opinion piece published in the New York Times, he warned that the incident where China cut off supplies of the materials, used in hybrid motors and guided missiles, to Japan last month, showed the emerging superpower "is dangerously trigger-happy, willing to wage economic warfare on the slightest provocation".

Japan in September arrested the captain of a Chinese trawler that collided with two Japanese Coast Guard vessels in waters controlled by the island state.

China, which produces 95% of the worlds rare-earths elements, then reportedly cut off supplies to Japan, though Beijing denied this.

Krugman went on to argue that the export quotas were already in violation of agreements China made before joining the World Trade Organisation.

"But the embargo on rare-earths exports to Japan was an even more blatant violation of international law," he said.

"China's response to the trawler incident is, I'm sorry to say, further evidence that the world's newest economic superpower isn't prepared to assume the responsibility that goes with that status."

"The world needs to develop non-Chinese sources of these materials. There are extensive rare-earths deposits in the US and elsewhere," Krugman commented.

The economist claimed that Chinese state subsidies to help firms gain key contracts, its exchange rate policy and the country's rare-earths actions painted a portrait of a "rogue economic superpower, unwilling to play by the rules".

"And the question is, what the rest of us are going to do about it," he challenged.



Edited by: Liezel Hill


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Picture by: Bloomberg