Many Charts on the Line

Here's one example of a chart that has hit its base-completing horizontal. The measured move when it does break out takes it to $66 per share. High risk of a pullback given last week's move.

Rare Earths Again

VanEck Rare Earth (REMX) has a chunk of China exposure, naturally. The companies best positioned to profit from an export ban or export quotas are Western companies that will sell into the global spot market. LYSCF is high risk here, the potential downside move equals the upside, risk is a move down to $1.00 or up to $2 resistance. If it were to climb back to $2.00, another breakout becomes possible.

You may also want to look into REMX's holdings if capital starts flowing into REMX. The fund is relatively concentrated because this is a small space. REMX is a big funnel for moving cash into relatively small stocks. REMX has $140 million under management, but top holdings around 5 percent of assets are in the range of $1 to $3 billion market caps. I don't think there's a lot of upside outside of a China trade war though, at least not in the short-term.

Lynas spiked on Monday because Australia's Lynas, Blue Line plan Texas rare earths facility

Rare earths producer Lynas Corp said on Monday it has signed a memorandum of understanding with Texas-based Blue Line Corp to set up a rare earths separation facility in the United States.

The move comes as the United States, which is highly reliant on the world's biggest producer China for rare earths, is prioritising the sourcing of its own strategic minerals used in everything from consumer electronics to military equipment.

The deal has been struck as Lynas faces regulatory issues at its processing plant in Malaysia, and fends off a $1.1 billion takeover offer from Australian retail-to-chemicals conglomerate Wesfarmers Ltd

Chief executive officer Amanda Lacaze told Reuters in a phone interview that the U.S. venture was a specific market opportunity and would complement its operations in Malaysia.

The venture would allow Lynas to close a "critical" supply chain gap for U.S. manufacturers.

Another Metals Bust in China

Quartz: Amer International might gobble up Fanya Metals Exchange for $5 billion—and placate some angry investors

Amer International Group, a little-known Chinese private company that makes cable and copper products, is in discussions with Fanya Metals Exchange about a $5 billion buyout that could rescue the beleaguered metals exchange—and potentially placate thousands of angry investors.
Chinese investors in Fanya who may have lost over $6 billion have been protesting for days to try to spur the Chinese government to bail them out, as Quartz has previously reported.

Bamboozled Chinese investors may have lost billions on a mysterious metals-trading scheme

At issue is an investment called Ri Jin Bao, a financial product guaranteed by Fanya that promises retail investors annualized returns as high as 13.7%, and the right to withdraw funds at any time. Those funds have been frozen since April, when Fanya said it ran into “liquidity problems,” according to Caixin (link in Chinese). A reported 40 billion yuan ($6.4 billion) owed to 220,000 investors nationwide has been frozen.
“I think Fanya breached a unilateral contract when selling Ri Jin Bao,” one of the protesting investors told Metal Bulletin. “It’s unfair for us.”

Why did hundreds of thousands of individual investors sink millions of yuan into a derivative product linked to indium, bismuth, and other metals few have ever heard of? The answer highlights how Chinese government regulations make it hard for middle-class households to safely grow their savings. It also reveals how easily China’s out-of-control borrowing creates wealth from nothing—and how quickly that wealth can collapse.

...Strangely though, Fanya consistently offered double-digit premiums over prices offered on the Chinese spot market. This became particularly salient after the global financial crisis, when demand for solar applications using indium slowed.

The rise of Fanya appears to have affected prices to the degree that it “became an alternative source of demand for metal that otherwise would largely have been used in high-tech applications,” says Alex Harrison, editor of Metal Bulletin. “Some producers preferred to deliver to Fanya at its prices rather than the levels prevailing in the spot market. In effect producers used the price but consumers didn’t, sticking instead to formulas tied to reporting agencies’ prices.”

Investors paid inflated prices for metals, while consumers of the metals obtained it at spot.

Retail investors aren’t the only ones who profited from Fanya’s scheme. The platform allowed producers to buy and sell simultaneously, according to Metal Bulletin—effectively letting suppliers create their own demand.

This setup did more than just allow canny producers to pocket the difference between the spot price and Fanya’s premium. In the time between the sale to the exchange and the repurchase of that same pile of indium, they could use a warrant guaranteeing their right to buy that indium back in the future as collateral for short-term bank loans.

Where have I heard this before?

Mining.com: Chinese rare earth metals exchange to pay $6.4bn owed to investors

The bourse, which owes investors the equivalent of US$6.4bn, said it plans to pay them off by buying back some metals on a regular basis.

Good plan. Let's look at how rare earth producers are faring.

If there's no buyout, it may take a long time for investors to get their money back.

China rare earth quotas

2011年稀土出口企业名单及第一批配额安排表
序号	公司名称	配额数量（吨）
1	中国中钢集团公司	584
2	五矿有色金属股份有限公司	747
3	中国有色金属进出口江苏公司	493
4	广东广晟有色金属进出口有限公司	431
5	常熟市盛昌稀土冶炼厂	196
6	江苏卓群纳米稀土股份有限公司	251
7	江西金世纪新材料股份有限公司	432
8	内蒙古和发稀土科技开发股份有限公司	750
9	江西南方稀土高技术股份有限公司	401
10	赣州晨光稀土新材料股份有限公司	374
11	赣州虔东稀土集团股份有限公司	329
12	有研稀土新材料股份有限公司	333
13	益阳鸿源稀土有限责任公司	594
14	包头华美稀土高科有限公司	954
15	内蒙古包钢稀土（集团）高科技股份有限公司	740
16	甘肃稀土新材料股份有限公司	689
17	乐山盛和稀土科技有限公司	750
18	阜宁稀土实业有限公司	327
19	山东鹏宇实业股份有限公司	709
20	赣县红金稀土有限公司	102
21	徐州金石彭源稀土材料厂	410
22	广东珠江稀土有限公司	166
23	江阴加华新材料资源有限公司	481
24	溧阳罗地亚稀土新材料有限公司	324
25	宜兴新威利成稀土有限公司	440
26	包头天骄清美稀土抛光粉有限公司	251
27	包头罗地亚稀土有限公司	867
28	呼和浩特融信新金属冶炼有限公司	296
29	包头华信冶炼有限公司	93
30	包头三德电池材料有限公司	127
31	淄博加华新材料资源有限公司	805
应得配额＝此次下达配额量×〔0.85×（A1+A2）＋0.15×A3〕
A1＝（各企业近三年出口数量÷全国出口总量）×0.9权重
A2＝（各企业近三年出口金额÷全国出口金额）×0.1权重
A3＝生产企业2009年出口供货量÷各生产企业出口供货总量

The table lists the new export quotas in tons. Below the table are the formulas. One is based on the past three years exports in quantity, another past three years monetary value, and the third 2009 exports.

Here's a link to the Google translation of the above.

Stocks didn't always react based on the news. Baosteel Baotuo Rare Earth (600111.SS) was up less than 2% on the news (number 15 on the list, with possible additional subsidiaries listed), while China Rare Earth (0769.HK) （subsidiary is listed at 25), gained 16%. Shares of rare earth miners listed in Australia also bounced on the news. MCP and REMX have solid gains in early U.S. trading following the news.

In other news...China likely to set up rare earth trade body

China is considering establishing an industry association and a government unit for the rare earths industry to gain more control over the precious metals, senior officials said Tuesday.

The rare earths industry association is likely to be launched in May and will assist companies in exports and international cooperation, Wang Caifeng, a former official of the Ministry of Industry and Information Technology (MIIT), who is setting up the group, said at a forum.

"We will be on the frontlines leading price talks with foreign buyers. Our role will be similar to that of the China Iron and Steel Association (CISA)," she said.

The article goes on to discuss the development of taxes, quotas and consolidation in the industry:

Since 2006, the country has imposed temporary taxes on rare earths exports and set limits on quotas. In 2010, China reduced export quotas to 60 percent, causing alarm among importing countries such as Japan.

The Ministry of Finance said on its website last week that China will raise the export taxes for some rare earth minerals to 25 percent in 2011.

The country is speeding up the pace of mergers and acquisitions in the rare earths sector and is encouraging consolidation among State-owned enterprises. China plans to cut the number of rare earths companies from the current 90 to 20 by 2015.

Rare Earth ETF (REMX) provides a shopping list

Investors looking for rare earth stocks can check out the rare earth ETF, Market Vectors Rare Earth/Strategic Metals ETF (REMX).

Here's a link to the holdings, in Excel spreadsheet. REMX Holdings

Here's the holdings as of October 13, 2010.

Lynas Corp Ltd LYC AU
Iluka Resources Ltd ILU AU
Titanium Metals Corp TIE UN
Thomp son Creek Metals Co Inc TC M CT
OSAKA Titanium Technologies Co 5726 JT
RTI International Metals Inc RTI UN
Toho Titanium Co Ltd 5727 JT
China Molybdenum Co Ltd 3993 HK
Kenmare Resources PLC KMR LN
Molycorp Inc MCP UN
Hunan Non-Ferrous Metal Corp 2626 HK
Neo Material Technologies Inc NE M CT
Cia Minera Autlan SA B de CV AUT LAN B MM
China Rare Earth Holdings Ltd 769 HK
Ferbasa-Ferro Ligas DA Bahia FESA 4 BS
Avalon Rare Metals Inc AV L CT
Rare Element Resources Ltd REE UA
Arafura Resources Ltd ARU AU
General Moly Inc GMO UA
International Ferro Metals Ltd IF L LN
Quest Rare Minerals Ltd QRM CV
5N Plus Inc GXY AU
Galaxy Resources Ltd VN P CT
Daiichi Kigenso Kagaku-Kogyo Co 4082 JT