Why Are Shares of This Rare Earth Company Up 40% Today?

Shares of China GengSheng Minerals (AMEX:CHGS) are skyrocketing over 48% higher after positive news from rare earth metal leader Molycorp, Inc. (NYSE:MCP).

Molycorp’s CEO announced the company’s revenues are in fact rising, proving to skeptics that rare earth metal companies are more than just momentum stocks.

Moreover, pricing and inventories are moving into a very favorable state. Prices are escalating beyond $100,000 a ton — up 9 times from last year. Global supply is also shrinking as China (NYSE:FXI) has restricted exports.

China GengSheng Minerals (AMEX:CHGS) manufactures monolithic refractory products and industrial ceramic products. The Company also manufactures fracture proppant products. All of these products have been in high demand as emerging markets (NYSE:EEM) continue to build out. Now that Japan (NYSE:EWJ) will need to rebuild for years, demand for these rare elements will only increase.

For the long term, the question is not whether investors should own rare earth stocks, it’s a matter of whether the prices are right. With an artificial cap on supply, now might be too high a risk of exports are allowed to increase again.

Disclosure: No positions.

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