President Obama signed a controversial Executive Order into effect on 16-March that could have an impact on western rare earth suppliers. Criticized for its scope and lack of oversight, the NDRP (National Defense Resources Preparedness) executive order, authorizes the National Security Council and Homeland Security Council to serve as the integrated policy-making forum. The Internet is churning with postings about the executive order's constitutionality, though some bloggers interpret it as a clarification of current laws.

Section 306, the relevant part pertaining to critical materials that would include rare earths, states, "The Secretary of Defense, and the Secretary of the Interior in consultation with the Secretary of Defense as the National Defense Stockpile Manager, are each delegated the authority of the President ... to encourage the exploration, development, and mining of strategic and critical materials and other materials." The full order is here.

The United States, EU, and Japan filed a formal complaint with the World Trade Organization (WTO) charging that China is limiting their export of rare earths. Rare earths are among the critical metals used in numerous high tech products from cell phones to hard drives, wind turbines and guidance systems.

"We want our companies building those products right here in America," U.S. President Barack Obama said in a related statement early last week. "But to do that, American manufacturers need to have access to rare earth materials which China supplies." While the U.S. was a leading producer of rare earths for high technology products in the past, the industry collapsed following sufficient supply at low prices from China, until recently. Rare earth prices exploded last year as China cut production and exports, the reason for the WTO complaint.

China had other things in mind regarding the dispute on rare earth exports, stating in the State news agency Xinhua that "it is strange that the Western world has never launched 'anti-dumping' measures against China's rare earth products as they have, more often than not, done to other China-made products such as shoes, shirts and tyres."

If the West wins the case, China would be required to raise its export quotas. China has until the end of March to respond, but the dispute could take years, according to experts close to the matter. The EU, the United States, and Mexico gained a favorable ruling a similar case against China in January concerning other raw materials, according to a Reuters story.

Rare earth equities have been mirroring the more upbeat trends seen in the January commodities markets. The index of rare earth stocks (REMX) has experienced gains of just over 10% since December lows, though some junior mining companies are dramatically outperforming the precious and strategic metals sector, notably Rare Element Resources (REE), which has nearly doubled so far this year. And before sliding Tuesday, Avalon Rare Metals (AVL) was up nearly 75% since the last trading day of 2011. The majority of rare metals mining stocks have tracked much closer to the overall markets, including bellweather Molycorp (MCP).

The rare earth industry and its investors were taken for a wild ride in 2011. Economic uncertainty and supply issues created downward pressure on rare earth equities, after a huge runup in rare earth prices. Some rare earth equities peaked in February, others began to slide in April.

The cost of rare earth metals fell after a few shot up dramatically in the first part of 2011. Prices for corresponding equities from the rare earths ETF (REMX) to North American vanguard Molycorp (MCP) have ridden the roller coaster metaphor. Capitalization has fallen as dramatically. Rare Element Resources (REE) provides an example, sliding from its 2011 opening of just over $17/share to almost $3 by year end. Some investors are surely wondering whether it's bargain time.

While the U.S. is waking up to realize that it is dependent on China not just for rare earths but their use in high technology products from solar panels to military systems, a new dilemna is emerging. With a massive transfer of U.S. manufacturing to China since the last rare earth mine closed down, and expertise with it, the capability to turn rare earths into useful components largely rests in the East.

Harvard Business Review published a fine document that describes the problem, using Amazon's Kindle™ as an example of a product that simply cannot be produced in the U.S. at this time. American goliath Apple is also heavily-dependent on manufacturing in Asia. There has been recent reassurance from China that products in fake Apple stores were not grey-market clones. 

In a briefing paper, GE stated that demand for some rare earths will outpace supply for some time. GE notes mines in USA, Canada, Australia and elsewhere are opening or re-opening and recycling could release thousands of tons of materials currently stored in old electronics and other products. However, the company is taking a number of actions to manage its supply chain and expand the company's base of suppliers.

The paper reports that prices of some Rare Earths, including Terbium and Europium, have increased by around 1000% the last 12 months. These costs could be passed along to consumers, the study suggests. "Further price increases seem highly likely", the paper states, in reference to the raw materials that make up lighting.

The long-waited news about China's rare earth export quotas for the balance of 2011 has been announced. Yesterday's quota announcement indicated a 2011 total quota of 30,000 tons, almost identical to the quota for 2010. To keep the planet guessing about the potential impact on rare earth element prices, and non-Chinese business tied to them, China added alloys to the quota pot. The addition of alloys to total quota could mean that the rare earth quota has been reduced. 

Recent news that the Japanese have found an abundance rare earth minerals on the sea floor is no surprise. Scientists have reported on rare earths in seabed rocks going back to the 1960s. Alan Ehrlich  wrote a Ph.D. dissertation at the Massachusetts Institute of Technology titled “Rare Earth Abundances in Manganese Nodules" as early as 1968 and "Rare earth element patterns in manganese nodules and micronodules from northwest Atlantic" in 1979. The recent Japanese report refers to minerals in international waters and leaves many questions unanswered about extraction technologies for ocean-based production, environmental hazard mitigation, and required international regulatory and monitoring processes.