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FYSA: China makes its Move Strategic Medals

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August 27, 2009 – Comments (11) | RELATED TICKERS: FXI , FXP

My Comment: In the big game of Chess being played, the announcement of "Check" could be heard from across the Pacific. Read, heed and possibly make a Plan B.

George Washington Blogspot breaks the story:

China Deploys Rare Earth Metals For Strategic Leverage

http://www.washingtonsblog.com/2009/08/china-deploys-rare-earth-metals-for.html



As I've previously noted, China has cornered well over 90% of the market for rare earth metals, which are essential in various high-tech products.

The Telegraph ran an article on August 24th pointing out that China is now deploying these resources to gain strategic advantage:

Beijing is drawing up plans to prohibit or restrict exports of rare earth metals that are produced only in China and play a vital role in cutting edge technology, from hybrid cars and catalytic converters, to superconductors, and precision-guided weapons.

A draft report by China’s Ministry of Industry and Information Technology has called for a total ban on foreign shipments of terbium, dysprosium, yttrium, thulium, and lutetium. Other metals such as neodymium, europium, cerium, and lanthanum will be restricted to a combined export quota of 35,000 tonnes a year, far below global needs.

China mines over 95pc of the world’s rare earth minerals, mostly in Inner Mongolia [My note: Mongolia is not part of China, but is an independent nation]. The move to hoard reserves is the clearest sign to date that the global struggle for diminishing resources is shifting into a new phase. Countries may find it hard to obtain key materials at any price...

No replacement has been found for neodymium that enhances the power of magnets at high heat and is crucial for hard-disk drives, wind turbines, and the electric motors of hybrid cars. Each Toyota Prius uses 25 pounds of rare earth elements. Cerium and lanthanum are used in catalytic converters for diesel engines. Europium is used in lasers.

Blackberries, iPods, mobile phones, plasma TVs, navigation systems, and air defence missiles all use a sprinkling of rare earth metals. They are used to filter viruses and bacteria from water, and cleaning up Sarin gas and VX nerve agents...

New uses are emerging all the time, and some promise quantum leaps in efficiency. The Tokyo Institute of Technology has made a breakthrough in superconductivity using rare earth metals that lower the friction on power lines and could slash electricity leakage.

The Telegraph points out that Japan is also taking steps to secure a supply of rare earths, but the West has not:


The Japanese government has drawn up a “Strategy for Ensuring Stable Supplies of Rare Metals”. It calls for 'stockpiling' and plans for “securing overseas resources’. The West has yet to stir.


The Telegraph also notes that China is not necessarily using its near-monopoly of rare earths to dominate the world, and that other countries may be able to extract more rare earths after slowly ramping up production:

Alistair Stephens, from Australia’s rare metals group Arafura, said ... “This isn’t about the China holding the world to ransom. They are saying we need these resources to develop our own economy and achieve energy efficiency, so go find your own supplies”...

It will take years for fresh supply to come on stream from deposits in Australia, North America, and South Africa.

The bottom line is that the West has been asleep while China has amassed tremendous control over scarce resources which are vital for both technological innovation and security. China's deployment of its dollar reserve holdings (which may lose value) to purchase these key strategic assets is very clever, indeed.

11 Comments – Post Your Own

#1) On August 27, 2009 at 10:17 PM, awallejr (79.57) wrote:

"Each Toyota Prius uses 25 pounds of rare earth elements."

That is interesting.

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#2) On August 27, 2009 at 11:24 PM, silverincite (38.76) wrote:

Rare earth elements are starting to get some attention.

I've been looking into a couple of explorers with potential to become producers in Avalon Rare Metals (TSE:AVL and PINK:AVARF) and Rare Element Resources (CVE:RSE). Avalon's properties are all located in Canada and RSE's only property is in Wyoming.

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#3) On August 27, 2009 at 11:39 PM, starbucks4ever (98.67) wrote:

I don't believe it. The probability that 95% of rare earths would choose to be located in Inner Mongolia is not even zero but an imaginary number.

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#4) On August 28, 2009 at 3:37 AM, uclayoda87 (29.34) wrote:

These metals likely exist in many other locations, but if the miner of other products don't feel that they have a significant market for these rare metals, then they won't actively produce them.  At least not yet.  This would be another reason to hold multiple mining stocks, since China's hording of these metals may help stimulate another product line for the existing miners.

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#5) On August 28, 2009 at 3:45 AM, SnapDave (61.72) wrote:

Note to your note: Inner Mongolia is not the country Mongolia.  Inner Mongolia is an autonomous region of China adjacent to Mongolia.  It is not exactly a province, but you can think of it as similar.  It is large, not very densely populated by Chinese standards and has a lot of ethnic Mongolians.  

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#6) On August 28, 2009 at 6:55 AM, abitare (88.86) wrote:

Good replies here, I will write more when I have time.

Credit Writes downs has a great post: 

FYSA: some classic Marc Faber:

Marc Faber is a hard money, old school investor who thinks that the U.S. government is going to reflate in order to avoid depression and that means gold is more valuable. But, for those of you who don’t know economic history, the fact is that this has been tried before, in the Great Depression in the 1930s and the result was that the government had to confiscate Americans’ gold. It was Executive Order 6102 signed on 5 April 1933 right after Franklin Roosevelt came to office and it forbade all Americans from owning physical gold assets.

Quoting Wikipedia:

It required all persons to deliver on or before May 1, 1933 all gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve. Under the Trading With the Enemy Act of October 6, 1917, as amended on March 9, 1933, violation of Executive Order 6102 was punishable by fine up to $10,000 ($166,640 if adjusted for inflation as of 2008) or up to ten years in prison, or both. Because of this forced immediate sale of gold to the Federal Reserve at the government set price of $20.67 per ounce, this Executive Order is often referred to as the Gold Confiscation of 1933. Shortly after this forced sale, the price of gold from the treasury for international transactions was raised to $35 an ounce; the U.S. government thereby devalued the U.S. dollar by 41%.

Order 6102 specifically exempted “customary use in industry, profession or art”–a provision that covered artists, jewelers, dentists, and electricians among others. The order further permitted any person to own up to $100 in gold coins (a face value equivalent to five troy ounces of Gold). Nevertheless, anecdotal accounts later related that many persons who possessed large amounts of gold simply ignored the order and hid their gold until the Order ceased to be in effect.

Faber seems to think the government could confiscate your gold again very soon. Take a look at what he has to say below.

 

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#7) On August 28, 2009 at 8:10 AM, XMFSinchiruna (27.60) wrote:

Abit,

Thanks for posting, and it is a very important story (and one that I was planning to weave into a pending article), but the blog you mentioned did not break the story. The story was broken by Ambrose Evans-Pritchard at the Telegraph. He's broken his fair share of significant stories over the past two years, and deserves the recognition ... even if I still disagree with many tenets of his economic commentary.

That's not to take away from the obvious observation that domestic news sources have been silent on the matter, and this is a very significant story.

Thanks for all the work you do posting relevant information!

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#8) On August 28, 2009 at 8:17 AM, XMFSinchiruna (27.60) wrote:

uclayoda87

While I fully advocate holding multiple mining stocks, I would not count among my rationales a hope that some are sitting on untapped rare earth metals. These things are called rare for a reason. If you had a material in your mines worth $800,000 per tonne, you'd be mining it. 

There are presumed to be some reserves of some rare earth materials on the African continent, but geologically speaking China and Australia are the hotspots, with China eclipsing Australia by a very very wide margin.

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#9) On August 28, 2009 at 5:44 PM, Tastylunch (29.39) wrote:

I saw this tooat the Telegraph

this is definitely an oh $hit kinda moment.

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#10) On October 20, 2009 at 12:33 PM, echobert (< 20) wrote:

Thanks for the attention to this article. SeekingAlpha has had a series of articles quoting 'resource experts' (do your own due diligence here!)

http://seekingalpha.com/article/165894-mickey-fulp-rare-earths-are-flavor-of-the-year?source=yahoo

I think these are the salient points: heavy rare earth metals are vital to the production of modern high tech, including military, devices; existing production is 90+% in China; US defense industry/military will ensure a native based supply ofsaid HREEs; mining of these resources is only economicaly advantageous when said HREEs occur in sufficient concentration; and lastly, such concentrations have been rarely discovered, to date, on earth, and then proven by assaying techniques.

*I own AVARF and UURAF, both pinks.

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#11) On February 27, 2010 at 3:53 AM, BrandonPaulChevy (< 20) wrote:

Is this true: "China and play a vital role in cutting edge technology, from hybrid cars and catalytic converters, to superconductors, and precision-guided weapons."? So the catalytic converter that I have is possible made from China?

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