Chart of the Week: Rare Earths Not Quite as “Rare

October 15th, 2012 by

Last year, China clamped down on exports of sought-after rare minerals and sent prices soaring. That action now is bringing new supplies on stream, just as demand has flattened up, causing a decline in prices that is nearly as dramatic.

Rare earth elements simply aren’t as rare as they once were, it seems.

An influx of new supplies of rare earths that are hardly household names – lanthanum, say, or cerium – is one factor bringing prices of these elements back down to, ahem, earth, after having skyrocketed last year amid speculation fueled by the crucial role they play in the manufacture of everything from smartphones and LED lighting to hybrid cars. While many strategists pondered the surge in the price of precious metals like gold, the smaller ranks of investors in rare earths rejoiced in far more astonishing gains. The prices of neodymium and dysprosium, for instance, soared more than sixfold to hit their highs in the first half of last year.

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As the chart above, this week’s chart of the week, shows, those glory days may be long gone. The decline in many of their prices has been nearly as steep as their ascent as last year’s shortage, which was due to a decision by China to restrict exports of these substances.

The first law of economics – that of supply and demand – then kicked in. As prices soared, new mining projects made it on to the front burner, and some of these are likely to come onstream before the end of the year, including an expansion to Molycorp’s (MCP.N) California operations. China remains by far the world’s largest producer of these materials, but as new supplies elsewhere hit the market while demand remains little changed, China itself also is changing its tune and has announced a higher export quota.

The market for rare earths is a murky place, given that geopolitical concerns – like China’s territorial dispute with Japan – and World Trade Organization negotiations may well affect China’s ability and willingness to make these products available. For now, the sharp drop in prices is a reminder that these elements earned the moniker “rare” more for the difficulty in extracting and processing them than for their scarcity.