- the source for market opinions


May 29, 2019 | China Threatens Rare Earth Supply—Time to Speculate?

Lobo Tiggre, aka Louis James, is the founder and CEO of Louis James LLC, and the principal analyst and editor of the Independent Speculator. He researched and recommended speculative opportunities in Casey Research publications from 2004 to 2018, writing under the name “Louis James.” While with Casey Research, he learned the ins and outs of resource speculation from the legendary speculator Doug Casey. Although frequently mistaken for one, Mr. Tiggre is not a professional geologist. However, his long tutelage under world-class geologists, writers, and investors resulted in an exceptional track record. The average of the yearly gains published for the flagship Casey publication, the International Speculator, was 18.5% per year during Tiggre’s time with the publication. A fully transparent, documented, and verifiable track record is a central feature of services going forward. Another key feature is that Mr. Tiggre will put his own money into the speculations he writes about, so his readers will always know he has “skin in the game” with them

Multiple news sources report that China is threatening to “weaponize” its dominance of rare earth elements (REE) supply. These elements—particularly dysprosium and neodymium—are vital to many high-tech applications.

The threat is potent, given that China has about 90% of the world’s REEs.

Reuters and Yahoo Finance both quote the Chinese as saying, “Don’t say we didn’t warn you.” That’s a phrase China has used before acts of physical war.

Would China really choke off supply, harming the profits of their own state-run REE mining companies?

Yes. Absolutely. They’ve done it before—and REE prices went through the roof.


Prices Chart 2008-2018 of one of rare earth elements, Neodymium

Not all REEs went up equally the last time China restricted supply. Neodymium is an example, however, of the multiples achieved.


So, is it time to speculate?

Well, first, remember that nine years ago, China’s action was to restrict exports of unprocessed REEs. The object was to force technology transfer. REE refiners built plants in China to get around the export restrictions. Once the Chinese learned how it was done, they eased restrictions, and prices plummeted.

That bankrupted companies that tried to build lower-grade mines, or mines that were more expensive to operate in the West, during the price spike. But this time, the price spike could be much shorter. China would likely reverse whatever action it takes on REEs as soon as a new trade deal is negotiated. Such a reversal would likely be part of the deal. This could happen in much less time than it takes to build refineries in China.

Plus, it may not happen at all. China’s saber-rattling is serious. I have no doubt that they would follow through. But it’s also possible that the tough posturing on both sides will result in a trade deal faster than many now fear.

More centrally to my method of speculation, a day’s news reports are not a trend.

The way I speculate is to look for a solid trend and bet on its consequences going forward. Betting on sensational headlines in advance of any actions actually taken is just gambling.

That said, I would be remiss if I didn’t mention that REE stocks have been in the doghouse so long, there could be an opportunity here. I could make a lot of money buying a few REE penny stocks and hoping the Chinese create a new price spike. If they do, these gambles could be 10-baggers. If the Chinese don’t follow through, I could just sell, perhaps at a modest loss, and move on. Or perhaps not: one example I checked is up a good 80% in the last few days.

This opportunity does not meet my criteria. There is risk. And I have no way to assess the odds.

I will not be gambling on REEs at this time.

If the threat materializes into a trend I can speculate on rationally, that would be different. But watch this space.

Caveat emptor,

Lobo Tiggre Signature

STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio delivered to your inbox for FREE! Sign up here for the Weekly Recap.

May 29th, 2019

Posted In: Louis James

Post a Comment:

Your email address will not be published. Required fields are marked *

All Comments are moderated before appearing on the site


This site uses Akismet to reduce spam. Learn how your comment data is processed.