How far can Molycorp stock climb? (NYSE:MCP)

So long as China keeps its choke hold on the rare earth metals market, that could mean the 270 percent climb in Molycorp’s (NYSE:MCP) shares is justified.

In seven short months, shares in Molycorp, Inc. (NYSE:MCP) have risen more than 270 percent. Can the trend possibly continue? Perhaps. Molycorp is, at the moment, the only commercial producer of rare earth metals in the Western Hemisphere.

While MCP mines just 3 percent of the global rare earth supply, China mines the other 95 to 97 percent – and the Middle Kingdom isn’t playing nice right now. Late last year, the country announced it would throttle back rare earth exports by 35 percent during the first half of 2011. That’s after China slashed export quotas by 72 percent during the second half of 2010, according to Bloomberg.

The Gillette News Record reports that world demand for rare earths in 2010 was about 127,000 tons. That could reach 188,000 tons by 2015. With deep cuts in the supply coming out of China, prices for rare earth metals have spiraled out of control. Cerium, for example, has jumped 600 percent, according to the Seattle Times, from less than $10 a kilogram to nearly $70.

“The use of these materials has really skyrocketed, with demand outstripping supply literally overnight,” Molycorp CEO Mark Smith told the paper. “We’ve got some serious issues in this industry. It’s going to be a tough year.”

As the world’s only significant rare earth producer outside of China, MCP’s shares have skyrocketed. Investors and government officials hope the company can ease supply concerns as other rare earth mines around the world struggle to enter production. It won’t happen overnight. Molycorp’s investing $500 million to boost production at its Mountain Pass, Calif., mine. The company should be processing 1200 percent more dirt than it currently does by 2014 for an output nearing 50,000 tons of rare earths.

Still, it won’t be enough to satisfy demand as the metals are used in an increasing array of high-tech industrial goods from electric car batteries to wind turbines. A single wind turbine contains more than a quarter ton (500 pounds) of rare earth minerals, the Gillette News reports. A single electric car can require as much as 60 pounds of rare earths. The greener our economy gets, the more we’re going to rely on companies like Molycorp – and, so long as China keeps its choke hold on the market, that could mean the 270 percent climb in MCP’s shares is justified.



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