INDUSTRIAL METALS / MINERALS
Experts talk of rare earth bubble
As investor awareness of the rare earths sector increases, prices have risen as much as 850%, and experts are talking about a bubble
TORONTO (Reuters) -
Until recently the global dependency on China for rare earths -- a group of 17 elements that are used in technology applications -- was a well-kept secret. But word started to spread fast after Beijing cut export quotas by 70 percent for the second half of 2010, sending prices of some rare earths up as much as 850 percent.
This price increase, along with investor awareness, has sent share prices soaring for non-Chinese companies that aim to be rare earth suppliers.
But analysts and industry executives alike warn that current Chinese policies could shift, and the bubble in prices, as well as company valuations, could burst.
Here are some quotes on the subject of the rare earth pricing and valuation bubbles.
CONSTANTINE KARAYANNOPOULOS, CEO, NEO MATERIAL TECHNOLOGIES
"I'm afraid there is a bubble in that sector. It's absolutely incredible that companies that three months ago were worth a few million dollars in market capitalization today to be worth hundreds of millions of dollars, just because China has further restricted the export quotas."
On why some companies are overvalued: "When I look around at all these junior mining companies that are proclaiming they will dig the ore out of the ground, then they will separate the individual elements and sell high-value, high-purity rare earths to the world, I have to roll my eyes, because we've been at it for 17 years, and we're still learning how to do it."
JON HYKAWY, ANALYST, BYRON CAPITAL MARKETS
"Everybody's standing up, waving the flag and shrieking it's rare earths because that pushes the valuation up, a good sign that we're in something of a bubble."
"There comes a point where you've run out of all the arguments, and at that point you're into the Alan Greenspan 'irrational exuberance' range. We've reached that for some of these names. You can't expect rare earth prices to continue to rise forever. You can't afford to make the products out of the rare earths any more if they keep rising."
CHRISTOPHER ECCLESTONE, STRATEGIST, HALLGARTEN & CO
"There's a dot-com aspect to a few of these mines ... A good example of that is Molycorp, which is a company that really has virtually no income at this point, and yet is now topping a $2 billion market cap and it sort of has a post dot-com like look about it."
On China changing its quota system: "Should the Chinese rebalance their quotas to a metal-by-metal quota system ... then you will end up with a situation where the prices of (cerium and lanthanum) will come screaming back and there will be rather a large wake-up call."
JONATHAN BARRATT, MANAGING DIRECTOR, COMMODITY BROKING SERVICES
"Is this a bubble? It depends on what the United States decides to do ... They have the metal in the ground and if they decide they can cope with the environmental impact and start digging it up, you will see prices adjust quite rapidly."
DAMIEN MA, ANALYST, EURASIA GROUP
"I don't think it's a bubble per se. When the other mines come on line in the U.S. and Australia, I think you can see a slight dip in prices ... but those prices will likely be sustained at a much-higher level than it has been."
MARK SMITH, CEO, MOLYCORP
"I do not think that we are in a bubble situation ... When you take a look at demand that is expected over the next four to five years versus the supply that is going to be there to meet it, that is a recipe for long-term sustained high pricing."
On the valuation of rare earth mining companies: "I think we have to be very careful about how we value certain companies right now based on these new prices because they have a lot of proof they have to put on the table first in terms of the real resources out there and in terms of processing those minerals."
NICK CURTIS, EXECUTIVE CHAIRMAN, LYNAS
"The underlying commodity price rise is not a speculative price rise. It's a price rise that is a function of real demand being unable to be met by real supply. So what I get at the underlying price rise itself isn't a bubble.
JIM ENGDAHL, CEO, GREAT WESTERN MINERALS
On the bubble in some rare earth oxide prices: "Right now cerium in China -- I believe the price is somewhere around $6 a kilo. Outside of China, because of the duties and tariffs, it's $35 to $40 a kilo. So if China decided that they were going to export cerium and drop the duties and tariffs on cerium, the prices outside of China would drop by that much."
PHIL ARNHEIM, ANALYST, ASIAN METAL
On whether rare earth consumers are feeling a crunch: "So far there hasn't been that much of an issue. If prices continue to go up, I think it will be. But, at least in the past couple of months, there's been more hype and panic than actual changes in the market itself." (Reporting by Julie Gordon, Scott Malone and Richard Lee; Editing by Frank McGurty)
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