A new commodity investment bubble may be forming in Rare Earth Elements (REE). In an article written by Steven Markusen of Archer Advisors for www.finalternatives.com, this is being driven by rising demand and a limited supply base. There are many new applications for REE that account for the demand picture. They are needed for rechargeable batteries for hybrid cars, hyper-efficient magnets for wind turbines and electronics (i.e. iPods and smartphones), oil refining and military uses. Also, China, Japan and Korea are building strategic reserves of REE akin to the US Strategic Petroleum Reserve.
China dominates the world's supply with a 96% share but only 59% of the world's reserves are in the country. The cost of production in China is much less than in the US, Australia, South Africa and Japan due to lax environmental laws and low labor cost. This drove the industry to close the higher cost mines in the other countries. REE extraction uses about 20 to 30 toxic chemical processes and has exposure to radioactive material such as thorium. The process to turn an REE deposit into a productive mine takes 5 to 10 years. Japan has begun a recycling program last year after China blocked shipments of REE during a diplomatic row in 2010.
There are about 30 publicly traded companies that mine REE such as Molycorp, Avalon Rare Metals and Great Western Minerals Group.
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