Germany to Raise Alarm Over Rare Earths Restrictions at G-20
Comment of the Day

October 22 2010

Commentary by David Fuller

Germany to Raise Alarm Over Rare Earths Restrictions at G-20

My thanks to a colleague for this topical article from the NYT and IHT. Here is the opening:
BERLIN - Stung by Chinese muscle-flexing over minerals crucial for high-technology industries, the German government said Thursday that it would raise the alarm at the Group of 20 talks, even as it looks to step up efforts to develop new supplies in Eastern Europe and Central Asia.

German companies say they are being pressed by Chinese officials to increase their investments in China if they want to be assured of access to rare earth minerals and two other obscure elements, tungsten and antimony. China dominates the mining of these metals.

Of all the countries dependent on these exports, Germany is making the loudest protests about China's behavior and appears dissatisfied with the European Union's more muted approach. Without mentioning China by name, the German economy minister, Rainer Brüderle, said attempts to monopolize such minerals presented a global challenge that had to be addressed at the G-8 and G-20 summit meetings in South Korea next month.

"These materials are decisive, especially for developing Germany's new high technology," Mr. Brüderle, who visited Japan and China last week, said in a statement. He said Germany and Japan wanted to work together to stimulate production in other countries that have rare earth elements.

Such elements are used to make a wide variety of electronic goods, including mobile phones and flat-screen televisions. They also can be found in specialized industrial products like drills and components for electric automobiles.
Three industry officials told The New York Times this week that China, which has been blocking all shipments of crucial minerals to Japan for the past month, has now quietly halted some shipments of those materials to the United States and Europe.

As of Thursday morning, Chinese customs officials, for a fourth day, were blocking final approval of the paperwork necessary for rare earth shipments to be loaded on ships and exported, industry officials said. Some shipments of rare earth metals were still leaving Chinese ports, but they tended to be cargos for which the customs paperwork had been approved before Chinese officials cracked down Monday.

The cuts have caused prices to rise and stoked fears in the industry that there could be a serious shortage of these metals. China denies that any embargo exists.

David Fuller's view This is the latest chapter in a saga that has alarmed OECD country industrialists and government security departments (see also Wednesday's lead item).

The China-induced shortage of rare earths is probably the economic story of the year, yet barely understood by many economists and strategists (search the Fullermoney site under 'rare earth' for more on this important subject). It also has broader implications for investors.

Soaring prices for rare earths metals, many of which have tripled or in some instances risen considerably more this year, can only increase investor interest in commodities and mining companies. Gold and gold shares could be least affected because they have been rising for a decade. However, rare earths have helped investors to rediscover uranium and uranium shares, many of which Eoin has reviewed recently.

Uranium, I should emphasise, is most definitely not a rare earths metal; it is produced in many countries and there is certainly no shortage today. This is why uranium (monthly, weekly & daily) has been the lagging metal over the last two years.

However, uranium is the key energy metal for the future. Energy importing countries which are serious about global warming and eventual energy self-sufficiency will need to build plenty of nuclear reactors. This takes time and the plants are very expensive, not least because of the safety measures required. Nevertheless, once built a few of today's modern nuclear power stations will produce far more clean energy than all the subsidised windmills and solar panels currently envisaged. They are also vastly cleaner than any fossil fuel power stations.

Investors have increasingly poured $ billions into gold ETFs in recent years and this has been a good investment. However, if I ask myself: will gold or uranium have the stronger performance over the next decade - my hunch is that it will be the energy metal.

Gold has been the best store of wealth for millennia, not just the last decade, and is likely to remain so for the very long term. Gold is highly desirable, unlike uranium, which we would most definitely not wish to fondle. However, in future the world will need uranium more than it needs gold, assuming as I do that countries will not give up currency printing for another gold standard.

Fullermoney maintains that gold is still in the secular bull market which we have discussed since 2001. However, it is a lot easier for a strategic metal to double or more from a low base, as we currently have with uranium, than from new highs following a world-beating, decade-long advance.

Uranium Participation Corp (U CN) is the ETF favoured by some informed friends and subscribers. It has been mentioned before and you can read about it on this Fact Sheet link, and here is the specific link for The Manager (Denison Mines Inc, which lists the fees.

I have yet to invest in Uranium Participation Corp but I intend to do so. I did buy some Denison Mines in July and August, as subscribers may recall.

My other uranium investments are via Cameco, Rio Tinto, BHP Billiton and BlackRock World Mining Trust.

Subscribers are always advised to do their own due diligence.

Here is a related article on Rare earth from Bloomberg: Rare-Earth Furor Overlooks China's 2006 Industrial Policy Signal.

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