Investors Need To Factor In Politics And The Global Economy When Buying Rare Earth Metals

An announcement that Indonesia is likely to introduce measures that will restrict

their availability on the market suggests that the scarcity of stocks of Rare Earth Metals will continue.

On May 3 2012 it was reported that the Government was planning to impose a 20% export tax on minerals exports, not including coal, and there was speculation that the move was because Indonesia wanted to conserve more stocks of raw ores for domestic processing in order to export higher-value finished metals. This duty will also be applied to tin, silver, lead, zinc, chromium, platinum, bauxite, iron ore and manganese.

This follows from China's restriction on REM exports, although in their case it was believed that the intention was to use them domestically to produce the finished products that use them, such as mobile phones, PCs, televisions and wind turbines.

This should all be good news for investors wanting to build a portfolio including REMs, because it is likely to push up their values dramatically.

Other factors come into play, however, making this a volatile situation in which global economic and political factors are also likely to play a part.

China's exports, for example, have been slowing markedly in the last few months and in April rose by 4.9% in comparison to the previous year and down from the 8.9% annual growth seen in March 2012.

This reflects the continuing severity of the global economic crisis that began in 2008 and the near-stagnation that is continuing in the developed economies and depressing demand.

While these economies continue on the austerity and deficit reduction path with high unemployment and little consumer confidence there is likely to be a depressed demand for imports from the Asian manufacturing economies.

The outcome of recent Eurozone elections in Greece and France, suggest that there is a growing demand for measures to stimulate some growth rather than focusing entirely on austerity measures and that the politicians are reacting to this.

Whether this will translate into any practical measures that will be effective in stimulating businesses to invest in growth and thereby create more jobs remains unknown as yet.

Other factors that come into play is the pressure on politicians from their populations to pay attention to the environment and global warming. REMs are crucial to the manufacture of many clean technology products from wind turbines to solar panels and electric cars.

This whole scenario illustrates for investors in REMs the complexity of the issues that can play into investment decisions. On balance, however, it is likely that regardless of the immediate economic climate the political and environmental situations investment in REMs is likely to be a good strategy, provided that the investor is prepared to wait a while for the return on the investment.

Copyright (c) 2012 Alison Withers

by: Alison Withers

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