Back in October we asked readers if they have "Ever heard of the oxides of Lanthanum, Cerium, Neodymium, Praseodymium and/or Samarium?" We added that "With price surges between 250% and 600% in one quarter, you may wish you have." As we further predicted, courtesy of Chinese attempts to corner the rare earth space, these oxides were due to explode much further, because as their name implies, these compounds are "rare", and happen to be mostly contained in one country: that's right China. Well, for those who decided to give it the good old speculative college try, you may now retire. As the chart below shows, the YTD moves in the oxides of Dysprosium, Europium, Neodymium, Lanthanum, and all the other ones, have not doubled, not tripled, but in same cases, seen their prices increase tenfold! And people ridicule the silver "bubble"... The extra benefit: the CME's "risk management" group is completely powerless to control the rate of ascent. And judging by the charts below, the rate is certainly worthy of escape velocity. What happens next is that plasma TV purchase one may have putting off for months could end up being costly, after TV producers are forced to double the prices of finished goods, not doing much to help hedonically adjusted core inflation.
Below is a chart of the oxides of Dysporsium, Europium, Neodymium and Lanthanum.
The reason for this dramatic doubling of prices in just the month of June if due to China, which has realized it has a complete monopoly on the supply, and as we predicted in October, would be only a matter of time, before it decided to see just how far it can push prices. Per Bloomberg:
Prices of the rare earths used in lasers and plasma televisions more than doubled in the past two weeks as China tightens control of mining, production and exports, according to market researcher Industrial Minerals.
The cost of dysprosium oxide, used in magnets, lasers and nuclear reactors, has risen to about $1,470 a kilogram from $700 to $740 at the start of the month, Industrial Minerals said in an e-mailed statement. Europium oxide, used in plasma TVs and energy-saving light bulbs, has more than doubled.
China, supplier of 95 percent of the 17 elements known as rare earths, has clamped down on rare-earth mining and cut export quotas, boosting prices and sparking concern among overseas users such as Japan about access to supplies. The government may further reduce export quotas, pushing prices higher, Goldman Sachs & Partners Australia Pty said last month.
“China has long said it will consolidate the industry but it’s moving more rapidly than many observers anticipated,” said Dudley Kingsnorth, a former rare earths project manager and now chief executive officer of Perth-based advisory Industrial Minerals Co. of Australia. “There might be an element of speculation but I think the price rises have been driven by people who are desperate for the product.”
The world’s most populous nation will raise standards for exporters and won’t approve new project expansions in an effort to curb overcapacity, illegal mining and sales, the government said last month. The Ministry of Land and Resources said yesterday it wants to set aside some rare earth deposits.
Where is Goldman opening its next office:
China’s Inner Mongolia Baotou region produces so-called light rare earths such as lanthanum, cerium and samarium. Heavy rare-earth production, concentrated in the south of China such as Ganzhou, includes the elements dysprosium, gadolinium and terbium.
So which end products are about to see their prices surge to pass through these ridiculous input cost increases:
Rare earths are used in wind turbines, hybrid cars and defense applications such as guided missiles. The market for the minerals may double to as much as $6 billion by the middle of the decade, according to an April 21 report by Ernst & Young LLP analyst Michel Nestour.
Additionally, as we also observed back in October, while Molycorp has already gone through several bubble iterrations, it may be Australia's Lynas that is poised for the biggest jump.
Sydney-based Lynas is building a $220 million refinery in Malaysia’s Pahang state that will process ores including neodymium and yttrium from Mount Weld, which it now owns.
“Until such time as Lynas and Molycorp are on-stream in the next two or three years, I don’t see much relief” from high prices, Kingsnorth said. “Chinese export quotas are less than world demand.”
A table on the website of Lynas shows the composite price of eight rare earths found at Mount Weld project has surged to $203.60 a kilogram on June 13, from $92.84 on March 31 and $11.59 in 2007.
“Demand for rare-earth elements is increasing in applications that are less esoteric than say, 20 years ago,” Watts said. “China, which is the world’s main commercially developed rare-earth elements source of supply, is reducing exports and increasing its consumption.”
Will China keep export conditions constricted? Maybe, maybe not. If anything this is merely another example of what can happen to global prices when China decides it doesn't want to play ball. It also shows just how great of an impact China can have on supply chains if it so chooses. Our advice to Schumer and the other politicians who are toying with the idea of enacting currency manipulation segilation: leave a sleeping Tiger lie. Because if the rare earth metal space is any indication, it won't take much for China to make sure reexported inflatin in the US surges by a factor of 10 in precisely zero time, sending the US economy spiralin out of control faster than one can spell hyperinflation.