Japan Finds Rare Earths: How to Trade It
On Friday, The Wall Street Journal reported that explorers in Japan had discovered a bed of rare earth minerals. The source, located off the coast of Japan's island Minamitorishima, reportedly contains enough minerals to supply Japan's high-tech industries for nearly 200 years.
In recent months, rare earth minerals have been the subject of heightened speculation for two reasons. First, rare earths are used extensively in the production of most modern technology products from hybrid cars to smartphones. Second, 98% of the world's supply is thought to reside in the northern regions of China.
China maintains strict control over its rare earths, only allowing a minimal amount to be exported under the country's quota policy. If Japan were to become a major producer, its exports could have a tremendous effect on the global economy.
Rare earth mineral production might prove to be a powerful boost to Japan's broader economy and its stock market, particularly because Japan remains an export-led economy dependent upon its high-tech industries.
Investors can get access to Japan's market through broad ETFs such as the iShares MSCI Japan Index (NYSE: EWJ). EWJ traded up over 1.60% on Friday.
Perhaps more directly, investors could consider taking a look at some rare earth companies. Most prominent is Molycorp (NYSE: MCP), which traded up over 5% Friday afternoon. Molycorp focuses on rare earth deposits outside of China, and might be involved in future extraction projects in Japan.
Of course, if Molycorp is not involved in Japan's rare earths, the find could actually be a negative catalyst for the name. More rare earths on the market may lead to reduced prices and thus reduced profits for Molycorp.
Rare Element Resources (NYSE: REE) offers a similar investment strategy, but the company has a market capitalization roughly a tenth of Molycorp's. On Friday, shares of Rare Element Resources traded up over 1.50%.
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