The Coming Rare Earth Metals Crunch     

• Many countries have turned to "green" industries as the future technology engines that will they hope will wean economies from dwindling supplies and soaring prices of fossil fuels.
• But the promise of green technologies has an Achilles heel, and that is the supply availability of the rare earth metals that are key to the production of advanced electronics like cell phones, hybrid cars, batteries, and even wind turbines.
• World demand for rare earth metals is currently over 110,000 tons/year, and expected to grow some 71% to 188,000 tons by 2012 (US Geological Survey).  Unless there is a significant shift in the global supply-demand balance, world demand is expected to exceed supply by some 40,000 tons/year in several years.
• Currently, China is very close to realizing their ambition of becoming the "OPEC" of rare earth metals i.e., an effective monopoly supplier. Further, China has begun to curtail exports of rare earth metals as they see their own demand surpassing domestic supply capacity in the foreseeable future.
• At the same time, China's state sponsored enterprises are scanning the globe for opportunities to acquire the remaining supply capacity that is outside of China. 
• However, while called rare earth metals, there is nothing rare (unlike crude oil reserves) about these metals. About 42% of worldwide rare earth metals reserves of rare earth ores still lie outside China.  China has with cheap labor and huge funding from Beijing been able to build formidable production capacity, but rising prices will significantly change the economies of exploration and production.
• For Japan, who leads the world in hybrid automobile technology and has aspirations of becoming the premier supplier of "green" products, ensuring supply of rare earth metals or developing replacement materials or technologies is crucial.
• For the time being, the scramble by developed and developing nations like China to ensure supply is likely to create a healthy M&A premium on the stocks of companies who currently own these resources. Some of these stocks have already quintupled and doubled, but we believe there is more to come.

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