Rare Earth Miners Get Whacked After China Announces Export Quotas

Although many equities received a small boost from a higher-than-expected consumer confidence number, rare earth miners (REMX) are declining sharply after China’s Ministry of Commerce set the first tranche of rare earth export quotas at 10,546 tons for 2012.

Reuters reports, “The ministry said that overall export quotas for the whole of 2012 would remain unchanged from 2011 ‘in order to guarantee international market demand and keep rare earth supplies basically stable’.  The full-year quota for 2011 stood at 30,184 tons, but total exports stood at only 14,750 tons in the first 11 months of the year amid a nationwide inspection and crackdown on illegal activities in the sector.”  China (NYSE:FXI) is the dominate player in rare earths as the country accounts for over 95 percent of the world’s output.  Rare earth elements are used in everything from electronics to renewable energy products.

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JP Morgan (NYSE:JPM) believes the quotas could place additional pressure on rare earth prices, after taking into consideration the expected production increases from Molycorp (NYSE:MCP) and Lynas.  Earlier this month, Molycorp shares jumped after announcing it received authorization by the U.S. government to commence exploratory drilling at a rare earth deposit near its Mountain Pass, CA facility.  However, shares of Molycorp closed 3.5 percent lower on Tuesday.

Molycorp is the largest rare earth company to take a hit from the quota report, but shares of Thompson Creek Metals Company Inc. (NYSE:TC) also closed more than 3 percent lower.  Avalon Rare Metals Inc. (AMEX:AVL) edged nearly 1 percent lower on Tuesday.  Although Rare Element Resources Ltd. (AMEX:REE) closed almost 6 percent lower, shares recovered the losses in late trading after reporting drilling results and progress with pilot plant.

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