"The Middle East has oil, China has Rare Earths".

Have you ever heard of the Diaoyutai Islands in the East China Sea? I haven't. But just five weeks ago, this tiny island chain became the focus of a superpower dispute between China and Japan — ancient rivals that have laid claim to the land and to the oil and natural gas reserves that lay below the sea floor.
The events unfold as follows

1.On September 7th, a Chinese fishing vessel collided with a Japanese Coast Guard ship in the waters off the disputed island chain. In a provocative move, Japan arrested the Chinese boat captain, as well as 14 other Chinese who were on the boat.

2.China called the skipper's arrest invalid and illegal, arguing that the islands have been part of China since ancient times. They demanded the immediate release of the captain.
In response, a group of Japanese ruling party lawmakers said the Japanese government should consider stationing troops on the islands.

3.When Japan didn’t comply with the request, China responded with a devastating economic decision...
On September 22nd, the Chinese halted exports to Japan of a vital metals group  called rare earth elements, and they’ve become some of the most sought-after metals by governments and corporations alike.
China accounts for over 95% of the global rare earth production. This means that if you want rare earths, you have to go to China.

4.According to the New York Times, "The Mideast had oil, but China has Rare Earth Elements. As OPEC did with oil...China is about to tighten its hammerlock on the market for some of the world's most valuable metals."
From hybrid car batteries to wind turbine motors to missile guidance systems... From iPhones to solar panels to flat screen TVs…
Metals such as cerium, promethium, europium, and many of the remaining 17 rare earth elements are essential to all modern electronic devices that use:

• rechargeable batteries
• electric motors
• photo optics
• solar cells
• strong magnets

Toyota’s hot selling hybrid car, the Prius, uses more than half-a-dozen rare earth metals.

5.Bottom line: Without rare earths, Toyota’s production of the Prius comes to a halt. Without rare earth metals, there can be no hybrid or electric car industry. And without rare earth metals, there can be no renewable energy market. Imagine a cellphone the size of a shoe. Or a laptop weighing 10 kilograms. That’s what we would be carrying around today, if not for the rare earth metals.  Their unique properties that have enabled the miniaturization of  electronic components including capacitors, lasers and powerful magnets. 

6.Needless to say, and without further ado,the Japanese, immediately released the Chinese boat captain. 

Congress and the Senate immediateley passed bills instructing the secretary of energy to issue a report to industry describing available mechanisms for obtaining government loan guarantees to reestablish a domestic rare earth supply chain; and (2) issue guidance for the rare earth industry on obtaining federal loan guarantees.

Too little too late?
As the world looks to sources for its rare earth supply outside of China, this crisis has set off a bull market in rare earth mining stocks.

Take a look at Rare Element Resources (AMEX: REE):
 

Fascinating, isn't it? (also check out "Supply and Demand 2" on this blog)

Harry