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.

Medallion Resources Enters the Rip Zone

Breakout could be underway at MDL.V,MMLOF. I own it around $0.26, bought recently looking for an imminent breakout move. Need price to hold and volume to confirm.

Will China Curb Rare Earth Exports? NDRC Says Yes

Global Times: China indicates it may use rare earths as weapon in trade war

"If any country wants to use products made of China's rare earth exports to contain China's development, the Chinese people would not be happy with that," said a spokesperson from the National Development and Reform Commission (NDRC), China's state planner, when asked about whether rare earths will be used as a countering weapon in the China-US trade war.

Industry insiders said that the comment, in a rare case, sends an implicit signal that China does not hesitate using rare earths as a weapon against the US amid the escalating trade war and US containment of Huawei.

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.

China's Rare Earth Advantage

The Week: How China can win a trade war in 1 move

Compared to the scale of the U.S. economy, the numbers are still relatively trivial and mostly theoretical. But if things do spiral into all-out trade war, it's worth noting China has a nuclear option.

I'm referring to rare earth metals.

These are elements like dysprosium, neodymium, gadolinium, and ytterbium. They aren't actually rare, but they do play crucial roles in everything from smart phones to electric car motors, hard drives, wind turbines, military radar, smart bombs, laser guidance, and more. They're also quite difficult to mine and process.

It turns out the United States is almost entirely dependent on foreign suppliers for rare earth metals. More importantly, it's almost entirely dependent on China specifically for rare earth metals that have been processed into a final and usable form.

Basically, if China really wanted to mess with America, it could just clamp down on these exports. That would throw a massive wrench into America's supply chain for high-tech consumer products, not to mention much of our military's advanced weapons systems.

China already severely damaged itself by cutting off rate earth exports to Japan in 2012. If it did this, it would make Trump's case for him and cause every nation that is wary of China's rise: Japan, Australia, Vietnam, Malaysia, Thailand, Indonesia, Russia and on and on to reduce their reliance on the Chinese economy. Just as the United States' abuse of the SWIFT system led China to create an alternative and for nations such as Iran to trade in gold rather than dollars. A monopoly position in a market can be maintained so long as potential abuse of its position is theoretical. Twitter, Google and Facebook are already spawning competitors and attracting government regulation for abusing their monopoly-like positions in the market.

America's problem has never been a lack of rare earth deposits — it has plenty. The problem has been maintaining a domestic industry to mine the minerals and transform them into final components. For a while, Colorado-based Molycorp made a go of mining rare earths at Mountain Pass. But it struggled to turn a profit, and eventually went bankrupt. In the middle of last year, a bankruptcy proceeding sold the mine to another China-involved consortium. The Chinese partner in the consortium, Shenghe, will have exclusive sales rights to the mined product for a period of time, according to sales documents.

That brings us up to date, and on to the final question: How do we fix things?

Free market types like to focus on environmental regulations. Mining rare earth metals is a nasty business, with a lot of chemical and radioactive byproducts. Properly disposing of that detritus is extremely costly, which makes mining rare earth metals for profit hard. In fact, regulators closed the Mountain Pass mine and fined it at one point for skirting the rules.

Of course, Molycorp was also badly damaged by the massive price swings brought on by China imposing and then ditching its export quotas.

But regardless, blaming the hippies for America's rare earth metal woes is doubling down on a bad strategy. Blinkered enthusiasm for free market solutions is how we lost domestic operations in the first place. Furthermore, China itself solved the environmental problem by just not caring, and created dystopian wastelands in the process.

If proper production of rare earth metals is too expensive for private profit, then government should step in. Either subsidize domestic industry, or nationalize it through direct industrial policy. Lots of companies are hard at work trying to find alternatives to rare earth metals as well, and we could be pouring public investment into that research.

Blinkered free trade theory is why it was lost. No one considered national security or the implications for high tech industries. "Potato chips, semiconductor chips, what is the difference?

It's easy to paint China as a villain here. The country does ride the uneasy line between ally and adversary. And it certainly wasn't prudent to allow China to corner the rare earth metal market. But ultimately China is just a hard-nosed global player, pursuing what it sees as its national interest. They've also taken a non-ideological approach to economics over the last few decades, picking market-based tools and big government policies as they see fit.

By contrast, America spent the same time period getting high on its own free market supply. And now it might just suffer the consequences.

The problem wasn't free market or even free trade theory, but the dominance of economic and financial considerations over national security, societal well being and other factors that should form a holistic view of a nation. Wall Street has too much power and Main Street too little. Part of the reason for the trade war is restoring a healthy domestic balance as well an an international one.

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 stocks sink

Rare earth stocks enjoyed a fantastic run during September and October, but they've been hit hard in the past week. Here's an update of the chart comparing Molycorp, China Rare Earth, and Baotou. The chart starts from the IPO date of Molycorp.

CMOC pops

China Molybdenum (洛阳栾川钼业) produces molybdenum and tungsten. It is a holding in REMX, the rare earth ETF I mentioned yesterday. Shares are up nearly 30% in Friday trading in Hong Kong (3993.HK), on no news...as of yet.

Update: China plans to restrict molybdenum mining in 2011. Same factor fueling the rare earth rallies.

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