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It's the bubble you've probably never heard of: The rare earth bubble. And it's due to pop in 2012, potentially devastating the industries of western nations that depend on these rare elements.

What industries are those? The automobile industry uses tens of thousands of
tons of rare earth elements each year, and advanced military technology
depends on these elements, too. Lots of "green" technologies depend on
them, including wind turbines, low-energy light bulbs and hybrid car batteries. In fact, much of western civilization depends on rare earth elements such as terbium, lanthanum and neodymium.

So what's the problem with these rare elements? 97 percent of the world's supply comes from mines in China, and China is prepared to simply stop exporting these strategic elements to the rest of the world by 2012.

If that happens, the western world will be crippled by the collapse of available rare earth elements. Manufacturing of everything from computers and electronics to farm machinery will grind to a halt. Electronics will disappear from
the shelves and prices for manufactured goods that depend on these rare
elements will skyrocket.

These 17 rare earth elements (REE) -- all of which are metals -- are strategic resources upon which entire nations are built. In many ways, they are similar to rubber -- a resource so valuable and important to the world that many experts
call it the "fourth most important natural resource in the world,"
right after water,
steel and oil. Without rubber, you couldn't drive your car to work or
water your lawn. Many medical technologies would cease to work and
virtually all commercial construction would grind to a halt.

Many of the strategic battles fought in World War II were fought, in fact, over control of rubber, most of which now comes through Singapore and its surrounding regions (Malaysia and Indonesia).

Global shortage of Rare Earth Elements coming...

Now, by threatening to cut off the world's supply of rare earth elements,
China appears to be attempting to monopolize this extremely important
strategic resource. According to information received by The Independent, by 2012 China may cease all exports of rare earth elements, reserving them for its own economic expansion.

An article in that paper quotes REE expert Jack Lifton as saying, "A real crunch is coming. In America, Britain and elsewhere we have not yet woken up to the fact that there
is an urgent need to secure the supply of rare earths from sources
outside China."

And yet virtually no one has heard of this problem! People are familiar with peak oil, global warming, ocean
acidification, the national debt and the depletion of fossil water, but
very few are aware of the looming crisis in rare metals... upon which
much of western civilization rests.

For those who still aren't convinced this is a big deal, consider this: Without rare earth elements, we would have no iPhones. Yeah, I know. That's a disaster, huh?

We would have no fiber optic cables, either. No X-ray machines, no car stereos and no high-tech missile guidance systems for the military. And here's the real kicker: No electric motors.

Demand outstrips supply

The problem with the supply of rare earth elements is that demand has
skyrocketed over the last decade from 40,000 tons to 120,000 tons.
Meanwhile, China has been cutting its exports. Now, it only exports
about 30,000 tons a year -- only one-fourth of the demand the world
needs.


In order to build more "green" technologies, the world will need 200,000 tons of rare earth elements by 2014, predicts The Independent. Yet China now threatens to drop exports to exactly zero tons by 2012.

It isn't hard to do the math on this: Without China's exports, the western world will quickly run out of rare earth elements.

Kiss your "green" wind turbines good-bye. And your Toyota Prius production lines, too. No more iPhones
and iPods either. Without these rare earth elements, entire industries
grind to a halt.

Can we mine it elsewhere?

China isn't the only geographic region where these rare earth elements are found,
but constructing mines to pull these elements out of the ground takes
many years. Some mines are under construction right now in other
countries that could help fill the demand for REEs, but making them
operational is "five to ten years away," says Lifton.

That means these other mines won't really be operational until 2015 - 2020.
Meanwhile, China could cut off its supply in 2012. That leaves a 3-7
year gap in which these rare earth elements will be in disastrously
short supply.

This brings up a couple of very important realizations related to investments:

It is almost certain that the prices for rare earth elements will
skyrocket over the next 2 - 5 years. This creates a huge investment
opportunity for people willing to take a risk and bet their money on
rising prices of these metals.

There's another big investment opportunity here, too: Recycling rare earth elements. As prices leap higher, it will become more economically feasible to
harvest rare earth elements out of garbage dumps and landfills where
people are discarding electronics such as motors, computers, sound systems and other such items.

Some smart entrepreneur will no doubt make a fortune by setting up and
operating a rare earth element reclamation operation of some kind.
These elements, after all, aren't destroyed when they're thrown away.
They sit around in the trash for eons, just waiting to be reclaimed and
re-used.

Lead, for example, is a metal that is successfully recycled today. Something like 85% of all the lead used in America today is reclaimed out of lead-acid batteries and other
similar devices. If similar programs could be initiated for the rare
metals, we could go a long way towards meeting society's demand for
these elements without having to keep mining them out of the ground.

Because let's face it: Mining these rare earth elements is a very DIRTY business. That's part of the contradiction in "green" technologies, by the way:
To manufacture them, you need rare metals mined out of ecologically
disastrous operations in China. It's the (literal) "dirty little
secret" of the green industry. All these wind turbines, solar panels,
hybrid car batteries and fiber optics may seem green to the consumer,
but behind them there's a very dirty mining business that rapes the
planet and pollutes the rivers in order to recover these "green" rare
metals.

In any case, unless scientists find less-rare alternatives to many of these rare earth metals, we are looking at a
serious global supply crunch for the years 2012 - 2020. Add the "rare
earth elements bubble" to your list of other bubbles to watch out for
in the years ahead.

Some of the 17 rare earth elements

Dysprosium - Makes electric motor magnets 90% lighter

Terbium - Makes electric lights 80% more efficient

Neodymium - Used in motor magnets

Lanthanum - Used for hydrogen storage

Praseodymium - Used in lasers and ceramic materials

Gadolinium - Used to manufacture computer memory

Erbium - Used in the manufacture of vanadium steel

Ytterbium - Used to make infrared lasers

Sources for this story include
The Independent:
http://www.independent.co.uk/news/w...

New York Times:
http://www.nytimes.com/2009/12/26/b...

The Independent:
http://www.independent.co.uk/opinio...

Wikipedia:
http://en.wikipedia.org/wiki/Rare_e...