Rare earth Metals Set to Become Rarer as China Plans Large Cutbacks

[Ed Mojica]

In an attempt to reduce its greenhouse gas emissions China plans to shutter one third of its 23 rare earth mines and one half of its 99 rare earth smelters and reduce its rare earth exports by one fifth.

China controls 95% of the world's rare earth supplies, the ensuing shortage could have a major impact on industries that are dependent on these materials, including renewables, electric vehicles, energy storage.

[AlfredoVoodoo]

Worth noting that of the 17 elements which make up what is known as Rare Earth Metals, not all are as important (or valuable) as others. For instance dysprosium, I came across this video http://bit.ly/NmM6zc made by London Metal Group which shows all the applications of dysprosium in modern hi-tech manufacturing.

[Ed Mojica]

It is also worth noting that although China controls 95% of rare earth metal production in the world, that is only because many countries closed their rare metal mines in the 1990's when China started producing much cheaper ores. If China now reduce supplies, some other country could enter the market.

[jamessteve]

Some firms operating in the alternative assets market are being accused of ‘rogue pricing’ in Rare Earth Metals (REMs), selling kilo bags of REMs at hugely inflated prices as an ‘investment’ to hundreds of retail buyers.

One such firm, operating out of rented offices in Canary Wharf, is handing out commissions of 60% and more on any monies their sales desks persuade out of investors. The firm – London Metal Group – can afford to be generous to its staff, as it is currently offering a kilo of samarium at over £190, when the FOB wholesale price out of China is less than £25 a kilo. LMG today is also offering cerium at over £102 a kilo, when the latest China wholesale price puts it at less than £14 a kilo. LMG’s prices are displayed clearly on its website.

Salesmen for the firm are telling investors (if any of them notice) that the price differential is due to add-on costs of transport, storage and wholesale market pricing, but most brokers in fact are able to obtain REMs at sizeable discounts to the prices quoted by Metal Pages, so the true differential between LMG’s prices to investors and the price paid for metals is likely to be very much bigger. As the brokers also fail to explain how they can give away 60% of investors’ money in commissions, then investors need to steer clear – at least 70% of your money could be going straight into a broker’s pocket, so that any ‘investment’ potential for the future is already wiped out.

Apart from the enormous price gap between the latest market prices quoted on Metal Pages and the LMG offers, gossip amongst traders in the REMs market also raises concerns about verification and security of the metals being sold to retail investors by LMG. The usual slick sales operation is telling ‘punters’ that their kilos of everything from cerium to samarium are safely tucked away in secure vaults in places such as Switzerland, but one of LMG’s ‘suppliers’ is a Seychelles-based company on which little material information exists, so that the quality and security of the metals is far from guaranteed.

Furthermore, gossip in the City suggests that the people behind these companies have been involved in previous scam trades and already face charges from the SFO – with some of them expected back in court in January as part of the ongoing ‘Operation Steamroller’ case. Meanwhile, traders are openly saying in the coffee bars around Canary Wharf that those who were scamming in the dud shares and carbon credits markets are now active in REMs.

Any scandal in the metals market – where the FSA does not have jurisdiction, and which can only be dealt with initially by the police or DTI – will come at a bad time for those firms trying to operate legitimately in the REMs market, and who are currently trying to get REM investments accepted for SIPP holdings. A scandal in rare earth metals will knock back those attempts, and hurt more ethical broking firms.

As we point out in our overview of REMs, “Beyond equity or fund based investments, involvement in the REM market is difficult for the private investor, and any ‘alternative’ offerings in this area need to be treated with real caution, if not scepticism. It is a difficult and complex area of precious metals because of the scientific and end-user complexity, the relatively opaque pricing, and changing variables of supply and demand”.

That’s not to say there aren’t solid offers out there for retail investors – just that LMG probably isn’t one of them.

[Investor]

I have heard that London Metal have been struck of the REM Exchange for giving out false information.
Who would you recomend to deal with.