The spectacular run-up in rare earth stock prices has a lot of writers and analysts calling for a top. I’m not convinced that’s the case – particularly as so many of the arguments against rare earths are misinformed. The argument that’s in vogue now? The WTO has ruled China’s rare earth export quotas illegal.

That’s simply untrue. The WTO has ruled that China’s raw materials export quotas on nine industrial ingredients including zinc and coke are illegal, according to the Wall Street Journal.

Nowhere in the current WTO case were rare earths mentioned, which means that the current ruling does not apply to rare earths. Still, experts believe the ruling will pave the way for a similar case against China – one that specifically addresses quotes on rare earth minerals. Keep in mind that the process does not happen overnight, though. The current WTO raw materials case was launched in 2009. If China appeals the decision that could further delay the launch of a rare earths case against China, and again that process would take several years to pan out.

In that time, several rare earth mines around the world will likely be in production from Canada to Australia and the United States. By then, China will have likely accomplished what it set out to do in the first place, too. Namely, building up rare earth metals strategic reserves and luring more high-tech companies to the Middle Kingdom.

Rare earth minerals are used in smart phones, electric car motors, wind turbines, flat-panel TVs and other high-tech electronics and industrial equipment. Prices for the metals have skyrocketed since China, which controls 95 percent of the world’s supply of rare earths, has ratcheted back exports over the past two years.

Even if China didn’t have export quotas in place, worldwide supply of the metals would be insufficient for the growing demand. Demand for rare earth is expected to rise to 180,000 tonnes by 2014, according to ResourceInvestingNews.com.

Colorado-based Molycorp, Inc. (NYSE:MCP) currently produces about 3 percent of the world’s rare earths, according to the Seattle Times, and the company’s rushing to get more production out of its Mountain Pass mine. MCP is currently the only commercial producer of rare earths in the Western Hemisphere. Australia’s Lynas Corporation Limited (ASX:LYC) is expected to begin mining rare earth metals as soon as late March.

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Tags: ASX:LYC, MCP, rare earths

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