JP Morgan Neutral on Molycorp After Chinese Export Quotas Announced

JP Morgan has published a research report on Molycorp

after several news reports (Bloomberg, People's Daily) stated that the Chinese Ministry of Commerce has set 2012 export quotas for rare earths. In the report, JP Morgan writes, "The total amount for the year appears to be 31,130 tonnes, or slightly higher than 2011 levels. In fact, 2012 will be the first year in which China has increased the quotas since 2005 (see table on right side column). The quotas will also be allocated according to light rare earths and heavies. We think these quota levels could put additional pressure on rare earth prices as quotas will increase slightly y/y while both Molycorp and Lynas add about 26k tonnes of incremental supply on a run rate basis by the fourth quarter. The division of quotas could also weigh more heavily on light rare earth prices (especially cerium and lanthanum), which had previously benefitted the most from the quota system." JP Morgan maintains its Neutral rating on Molycorp, which is currently trading down $0.69 from Friday's $29.04 closing price.