Doubling Demand for Rare Earths Seen Pushing Prices Up in 2012

By Christine Gaylican,

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The various and extensive use of permanent magnets in electronic gadgets, radars, hybrid cars, energy efficient solar panels and wind turbines will continuously push the demand and price for rare earths in 2012.

This is the assessment of U.S. based rare earths producer Molycorp ( MCP ) CEO Mike Smith in a dialogue with company shareholders led by Baron Capital chairman and CEO Ron Baron.

"We're talking double-digit compounded annual growth rates for the foreseeable future. Nobody knows when that's going to stop so that's a huge growth market for us. Those magnets are going to be used in hybrid and electric cars.

"They're already used in today's cars. When you look at the wind power business, the wind turbines that are being converted are using permanent magnet generators so they can be more efficient and reliable than the old inductive coil gear-box type systems. So those are the huge, huge growth areas but as long as you and I need gasoline we still have to have rare earths," Smith said during the event aired over CNBC.

Smith noted that the current supply constraints, with about 95% of world's supply generated by China, there is now pressure on prices of non-Chinese suppliers.

Molycorp had not seen any fluctuations in the demand volumes in spite the relative slowdown in the global economy. Thus, some Molycorp customers are willing to pay a premium for a steady supply assuring them of better margins.

"There probably are some global economic issues but I think the order volume really indicates a supply and demand problem for rare earths. There just aren't enough of these materials to meet the demand and so everything we make we are selling. And with the prices the way they are today even though we want to be very cooperative with our customers and make sure they're competitive, we're actually making the highest margins in the history of the company," Smith explained.

To be less reliant on China for rare earths, companies like Molycorp, Lynas Corp., Alkane Resources, Globe Metals Mining, among other mining firms have embarked on mineral exploration projects to uncover more of the coveted rare earths in other countries.

Recently, the U.S. Congress considered a strategic stock pile of rare earths as they are used in a variety of applications including global positioning and guidance and control systems, according to a Congressional Research Service report. 

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Related articles:

China's Attempt to Control Rare Earths Causes Prices to Drop 133%

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Commodities
Referenced Stocks: MCP

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