News

Chinese rare metal exports ban

11 Sep 2009
Written by: Graham Bibby

We are looking for what we call a "Super Major Bull Market" in Rare Earths. Not everybody is aware of what Rare Earths are, but they are crucial elements for a wide range of vital products that will dominate this century's growth areas: electric cars, windmills and solar devices! You can't make a battery small enough to fit into a cell phone, camera or wrist-watch without Rare Earths.

We also pointed out that corporations owned by China had cornered perhaps 97% of the world's Rare Earth production. We believe the five we have chosen offer the chance of at least one of them becoming a major winner at the center of the field's available chessboard.

We turned bullish on China on 12 Feb 2009, when we figured that their pent-up demand for raw materials would trigger a worldwide economic upturn.

China was stockpiling raw materials while prices were down during last year's crash, and at the same time conveniently escaping from holding so many dollars!

At least 90 large freighters full of iron ore are parked outside Chinese ports as that nation has also been stockpiling aluminum, canola, copper, nickel, soybeans and zinc. Starting this April China began to stockpile crude oil, one of the reasons we stayed bullish on the fuel near its lows. We also turned bullish on base metals, starting with copper in our TDL of 13 Jan 09 because of our bullishness on raw materials.

While American steel mills are operating at 50%-60% of capacity, Chinese mills were at 70% and Indian steel mills at 100% of capacity.

China has joined Saudi Arabia and Kuwait in buying millions of acres of farmland worldwide in order to grow crops to be shipped back home.

With Rare Earths, the bottom line is that nearly all the world's dysprosium, neodymium, praseodymium, and terbium come from China. Toyota's nickel metalhydride batteries and brushless DC electric drive motors required by Toyota and Lexus hybrids must have these Rare Earths or they don't get built!

China currently produces 95% of the world's Rare Earth supply, the metals are also found in the U.S., Indonesia, Australia and South Africa. Rare Earth metals are needed for the manufacturing of wind turbines, plasma televisions, mobile phones and hybrid car batteries, meaning the Chinese monopoly could shift the high-tech manufacturing industry bases from Japan and Korea to China.

China employs a three-pronged strategy; Rare Earth exports are restricted, imports encouraged, and outbound Rare Earth acquisitions actively encouraged.

Companies that lack multi-commodity ore bodies, including minerals such as iron ore alongside Rare Earths, will find it hard to operate outside of China's influence because most of the technology needed for refinement is only produced in China.

We will predict that a historic commodity bull market began in 2001, despite the crash of 2008 that hurt virtually everybody's portfolios. We hope that there may be some profit-taking pullbacks when better buying opportunities appear ahead. That time is now!

Richmond's investment philosophy is to identify clear trends and to exit is a trend reverses to protect against the downside. It was this stringent methodology which made us switch out during the downturn 2007 to 2009 before fully re-investing in March 09. We also look for the next 'sexy investment theme' - the one that's going to knock returns out of the park...and even then we only invest once a clear uptrend is identified and exit if a trend reverses.

Richmond Asset Management (http://www.richmondhk.com/) is a leading asset management company with CIO Graham Bibby appearing on CNBC, Bloomberg and BBC, and provides investment management services to companies and wealthy individuals around the world.