REE’s experience a market turnaround despite continued volatility
ProEdgeWire Rare Earths and Critical Minerals Month in Review: After the massive crash with multi-year lows in mid-April, REE shares experienced what was, by any measure, an important turnaround. The world’s largest producer of rare earths, Inner Mongolia Baotou Steel stopped production for a month, which may have served to sustain prices of REE’s temporarily; however, the actual trigger for the turnaround was pulled by Molycorp’s Q1 results. Molycorp (NYSE: MCP) announced for the first three months of 2013 sales of 146 million dollars, which was 9% higher than the result of the previous quarter. This was a definite improvement over the last three months of 2012. Molycorp expects to improve the situation for the second half of 2013, since then the sales should increase and the company’s Mountain Pass facility is expected to reach full commercial production. Molycorp’s results also pointed to a return to normal levels of demand.
Even though REE shares have fallen flat in the latter half of the month, most of the companies on the ProEdgeWire Rare Earths and Critical Minerals index have closed the month of May in better shape than they started it and the trend toward turnaround has the legs to sustain itself in the second half of the year. Evidently, given its dominant position in the rare earths sector, the signal for the turnaround has come from China. Surely, China’s position as the main REE exporter remains unchanged, but its exports have dropped significantly in the past year and new sources such as Molycorp and Lynas Corp (ASX: LYC | OTCQX: LYSDY) are coming online.
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China has tried to take advantage of its dominant position, which put industrialized countries in distress, forcing them to raise the issue to the highest political levels. The WTO will rule on the Chinese REE dispute with the United States, Japan and the EU in June and this should help to draw more interest on the sector. Moreover, Chinese REE exports, according to Chinese authorities amounted to some 6,112 tons for the first four months of the year but April alone accounted for 2,196 tons, over a third of that and up more than 25% over April 2012. As an importer, Japan remains a significant market, despite the nationalist government and ongoing dispute over the Senkaku/Diayou islands. As for Japan, the country has been experiencing a vigorous market and growing consumer demand, which is also likely to significantly affect the price development for the rare earths. In the long term, China is likely to lose market share as many Western industrialized countries seek to promote or own the expansion of capacity and China continues to reign in ‚‘wild‘ production, enforcing much tougher environmental regulations.
Lynas and the U.S. Company Molycorp, as mentioned, are among the companies that can already break down and the Chinese make first major competition. In addition, Tesla Motors, the electric automobile specialist manufacturer, recorded a remarkable share performance, proving that there is indeed a market for rare earths and especially new applications with the possibility of a mass market. In the week ending May 10, the Rare Earth Index rose almost 20%. May 2013 showed that the REE sector has much life left, despite it having come under massive pressure for months. Surely, there is still reason for caution, but a more ‘confident’ form of it as even companies that have completed significant steps toward production this month such as Avalon (TSX: AVL | NYSE MKT: AVL) or Tasman Metals (TSXV: TSM | NYSE MKT:TAS) will need millions of dollars to continue development of their projects. The key ingredient will be to clearly define the resources and to reach advanced stages such as completing feasibility studies (as Avalon did) in order to attract what thin capital availability there is. Nevertheless, if anything at all, the last month has shown that rare earths as raw materials have a future and that also applies to the stock market. The tight supply situation has not changed and the drive to reduce dependence on China remains.
Numbers for May 2013 REE Leaders Index:
May hit the ground at 441, closing at 422 – down -4.3% for the month.
Overall, ProEdgeWire sponsors were down -2.51% for May 2013 and front runners for May include American Vanadium (+35.09%), Quest Rare Minerals (+32.63%), Tasman Metals (+21%), Lynas Corp. (+19.65%), Peak Resources (+17.86%), Medallion Resources (+12.76%), Rare Element Resources (+12.02%), Cache Exploration (+50%) and Pele Mountain (+7.3%) and Focus Graphite (+5.08%).