Rare Earth Stocks Vanish in China as 'Wenzhou Stir-Fry" Takes Full Effect

Rare Earth prices in China are sky-rocketing….again.

Since the beginning of the year prices have doubled. It’s very difficult to get rare earths directly from the spot market now.

Speculators are now buying at any price.

Prices of two light rare earth elements, praseodymium oxide and neodymium oxide, have soared about 120 percent from the end of last year to 459,000 yuan (about 70,000 U.S. dollars) per tonne and 575,000 yuan per tonne, respectively, last Friday, according to data of Hwabao Securities.

Prices of two other heavy rare earth materials, dysprosium oxide and terbium oxide, were 104 percent and 81.5 percent higher than at the end of last year.

The buyers are no longer downstream clients but speculative money coming in from ….WENZHOU!

Wenzhou? So what’s the big deal… right?

Just mention doing business against “Wenzhou people ” in China and it is enough to strike fear in your heart. These are tough business people from the mountains of Eastern China and they have very sharp elbows.

When China started opening up, Wenzhou people started by elbowing out the Guangzhou and Fujian people from Chinatowns all across the world. They were also the first to jump on opportunities to get into the manufacturing game becoming a major export region. A good majority of the items you buy today in Walmart come from factories near the Wenzhou area.

Another example, there were many Wenzhou firms trying to sell diesel generators to Japan within hours of the Sendai Quake.

The Wenzhou people are famous in China for taking over the Shanghai real estate market ten years ago. They profited handsomely making returns of 500% or more.

The Wenzhou investment technique consists of a method call “Wenzhou Stir-Fry”. This investment method utilizes their local family connections and village relationships. They combine their resources and create a flash mob of buyers.

I personally witnessed this first hand in Shanghai around ten years ago as the building across the street from me was selling for 4,000 RMB/sq. meter. One day, every unit was bought up by Wenzhou people…the next month…the price was 15,000 RMB/sq. meter.

They combine to buy up supply and hold it until the profits build and build..then they dump it.

Now the Wenzhou people have spotted the Rare Earth shortage and are buying hand over fist. We are at the beginning of the game. Based on past investment experience I don’t see them selling until they are up hundreds of percentage points.

I expect the Chinese government will have to step in to stop the speculation and ensure supply to downstream processors.

Wenzhou Stir fry is in full effect.

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