U.S. Strategic Rare-Earths Reserve More Likely
by Justin Dove, Investment U Research
Wednesday, November 9, 2011
The Financial Times reported last Friday that two congressional sources claim "the creation of a U.S. rare earth strategic reserve is more likely to get the go-ahead after China's largest exporter halted production."
Last month we covered China's decision to halt production and further control the market for rare metals as prices were slipping due to increased supplies worldwide.
The biggest benefactors will be California's Molycorp (NYSE: MCP) and Australia's Lynas Corp. (OTC: LYSCF.PK). But smaller rare earth miners, such as Avalon Rare Metals (AMEX: AVL), Quest Rare Minerals (AMEX: QRM) and Rare Element Resources (AMEX: REE), may also see increased demand from the supply scare.
Over the long haul, supply for rare earths should increase and prices should fall. But with the halted production in China, which currently produces 97 percent of the world's supply, and a strategic stock pile by the United States, there should be a spike in demand over the short term - especially in the non-Chinese producers listed above.
Molycorp expects to increase its production to an annual capacity of 40,000 metric tons by the end of 2013.
The creation of a U.S. stockpile would allow Molycorp to run "flat out production" from its expanded operations, an analyst told the Financial Times.
Molycorp Earnings Call
Investors should pay close attention to Molycorp's earnings call on November 10. It's an incredible short squeeze candidate with 26 percent of its float in short interest. With news that it may face increased demand in the short term, a bullish earnings report could result in a bit of a pop. If that happens many of the shorts could be forced to buy the stock, which would send it even higher.
Stay tuned on Thursday.