Reduced Exports are Driving Rare Earth Element Prices Skyward

Earlier this year, China, representing 97% of the global rare earth element production, reduced export quotas by 72%. Today’s announcement by China to reduce its export quotas by a further 11% has sent the share prices of rare earth producers spiralling upwards. At the time of writing, shares of Rare Earth Resources  (REE) are up 21% to $14.21 and Molycorp (MCP) is up 8% to $53.40. Canadian-based explorers explorers such as Avalon Rare Metals (TSX:AVL) are also appreciating on the news, up 17% to $6.88.

This decision to control its mining output and the related environmental impact will continue to rock markets going forward into 2011. The drop in exports of these critical materials, used in almost everything from iPads, hybrid cars, and guided missiles, has prompted Japan to search out exploration and production-based partnerships in the US, Canada, and Australia.

In the last month, Hitachi Metals and Sumitomo Corp signed deals with Molycorp, the global leader in rare earth production. This industry expects more such deals to be signed by Japanese companies seeking to secure materials in this tightening supply chain environment.

The latest move to curb exports may further exacerbate tensions with the U.S., which last week said it may file a World Trade Organization complaint over restraints on supplies of the minerals.