Rare earth elements

Many investors have dramatically expanded their vocabulary over the past few months.

On a smoke break or huddled around the water cooler they’re throwing out words like “ytterbium” and “neodymium” as if holding PhDs in geology, and they even seem know what they’re talking about.

That’s what happens when China decides to restrict the world’s supply of rare-earth metals, which are comprised of 17 elements used in everything from smart phones and big-screen TVs to wind turbines and electric cars.

It wouldn’t be so bad if China didn’t control more than 95 per cent of the market, but because it does a number of rare-earth metal stocks based in Canada, the United States and Australia have been on a wild ride.

Some, such as Molycorp, Rare Element Resources and Hudson Resources, have more than tripled in value over the past five months as investors anticipate the future riches expected to come from filling the Chinese vacuum.

As defined by IUPAC, rare earth elements or rare earth metals are a set of seventeen chemical elements in the periodic table specifically the fifteen lanthanoids plus scalanthanoids , scandium and yttrium.  Scandium and yttrium are considered rare earth elements since they tend to occur in the same ore deposits as the lanthanoids and exhibit similar chemical properties.

Despite their name, rare earth elements (with the exception of the radioactive promethium) are relatively plentiful in the earth’s crust with cerium being the 25th most abundant element at 68 parts per million (similar to copper). However, because of their geochemical properties rare earth elements are typically dispersed and not often found in concentrated and economically exploitable forms known as rare earth metals.  It was the very scarcity of these minerals (previously called "earths") that led to the term "rare earth". The first such mineral discovered was gadolinite, a compound of cerium, yttrium, iron, silicon, and other elements. This mineral was extracted from a mine in the village of Ytterby in Sweden; many of the rare earth elements bear names derived from this location.

Geo-political considerations                  

China has officially cited environmental issues as one of the key factors for its recent regulation on the industry, but non-environmental motives have also been imputed to China's rare earth policy.  According to The Economist, "Slashing their exports of rare-earth metals...is all about moving Chinese manufacturers up the supply chain, so they can sell valuable finished goods to the world rather than lowly raw materials. One possible example is the division of General Motors which deals with miniaturized magnet research, which shut down its US office and moved its entire staff to China in 2006.