Chinese Stocks Herald Metals Madness

By Paul Springer

China Shen Zhou Mining & Resources was up 65.41% on Tuesday, the biggest positive jump for any stock with liquidity. There was no striking news on the company, but it hopped a lot higher than the 22% bounce it took in August when it announced stellar quarterly numbers.

But there was striking news on Chinese metals companies, especially those involved in extraction of rare earths and certain unusual minerals. As noted here previously, China has huge and nearly unique deposits of many of the 17 rare earth elements, as well as large supplies of some other minerals which, though technically not rare earths, are just plan rare.

Three of China Shen’s mineral interests (zinc, lead and copper) are hardly rare, but it also does business in fluorite, a halide mineral whose proper name is calcium fluoride. The substance has uses in smelting, ceramics, and lens making.

Fluorite is not rare, but miners searching for it recently in Mozambique struck a rare earth jackpot, Mining Weekly says. The possibility that this is not a coincidence may be giving some investors second thoughts about fluorite.

The 17 rare earths are not that rare either, but the fact that China has an effective lock on many of them means that they are difficult to obtain in other parts of the world. And they won’t be getting any cheaper in the near future, according to reports that China is quietly tightening restrictions on exports. This could ratchet up production costs for a number of technologies dependent on rare earths.

While China has no official rare earths policy, The New York Times reports three industry officials confirm that China has escalated from blockading shipments to Japan to cutting off supplies to Europe and the U.S. Prices have dutifully surged.

The Times puts the situation in perspective:

China mines 95 percent of the world’s rare earth elements, which have broad commercial and military applications, and are vital to the manufacture of products as diverse as cellphones, large wind turbines and guided missiles. Any curtailment of Chinese supplies of rare earths is likely to be greeted with alarm in Western capitals, particularly because Western companies are believed to keep much smaller stockpiles of rare earths than Japanese companies.

Note that the official Chinese policy, reiterated after the Times article, is that China is merely strengthening its export regime in rare earths in order to crack down on smuggling. Right. And in terms of investing, ZeroHedge says China’s recent mineral trade restrictions are in line with the site’s rare earth price movement observations from earlier in the month:

Ever heard of the oxides of Lanthanum, Cerium, Neodymium, Praseodymium and/or Samarium? With price surges between 250% and 600% in one quarter, you may wish you have. The recent pissing contest between Japan and China . . . translated in ridiculous price jumps in some compounds most have never even heard of . . . And with China producing more than 90% of the world’s supply of rare earth minerals, coupled with increasing probability of escalating global (and regional) trade wars, it is distinctly possible that the gains recorded recently in gold will be dwarfed by the imminent Samarium Oxide bubble, which 3 months ago was trading at $4/kg and is now over $30.

Given the political dynamic to these commodities price, assuming a long term upward movement would put the investor at the mercy of several nations’ economic acumen—a terrifying scenario. But for those finding inadequate volatility in equity and equity option markets, these metals may be just the ticket for the price roller coaster that volatility junkies love to ride.

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