Australian Shares Sparty's Blog
Comments on this blog should never be taken as investment advice
Posts on this website are general "tips" and nothing more than that and should never be used to make an investment or trading decision. All information should be carefully cross-checked against official sources for accuracy.
Main Forum•Recent REO Share Price Falls
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Hi Sparty, I have read that REO prices have softened of late but the drop in the share prices of ALK, LYC and ARU has been large. The market is dropping but not nearly as fast as these REO shares. Do you know how much the REO prices have fallen and why? I'm struggling to find the info.
Alite
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Hi All, An article in the Age may explain the share price drops: excerpts follow:
“A greater focus on recycling and substitution, particularly by Japanese consumers, has resulted in the tightness of demand easing somewhat for the lighter rare earths,” Berridge said by phone.
Prices for cerium and lanthanum, the most abundant rare- earth elements, will drop by 50 per cent in 12 months, Christopher Ecclestone, an analyst at Hallgarten & Co. in New York, has forecast. Neodymium and praseodymium, metals used in permanent rare-earth magnets, may fall as much as 15 per cent, he said.
Some Toyota vehicles will be built with an induction motor, which doesn’t use rare-earth magnets, said John Hanson, a Toyota spokesman in Torrance, California. “Moving from a fixed-magnet motor to an induction motor is a huge savings with regard to rare-earth metals,” Hanson said by phone. (though the article went on to say that there will be a drop in efficiency with the induction motor)
Rare earths have been pushed lower because of selling by speculators, Michael Gambardella, a New York-based analyst at JPMorgan Chase & Co., said in a report last week. Tsunami- related disruptions in Japan and dumping of unpermitted material in China have undercut prices, while industrial substitution has driven “demand destruction,” said Sam Berridge, a Sydney-based analyst at Royal Bank of Scotland Group Plc.
It seems reasonable to me that a substitution of technologies in the car industry could reduce the demand for REO magnets. But I'll bet that these substitutes are not as good as the REO based products that they are replacing and so the price of REO products will settle at a number that is good for both the market and the suppliers / shareholders. I also think that ALKANE is very much insulated from the reason for price falls as they have a relatively high % of the heavier REOs (the price of which continue to rise) as well as another income stream coming from their Zirconium.
To my mind the price fall is a buying opportunity with ALK at the front of the list.
Alite
Note: I hold Alkane shares
