It all started when Japan confronted China in a dispute over fishing rights.

At sea, the Japanese arrested a Chinese fishing boat captain. The Chinese soon imposed an embargo on "rare earths" exports to Japan.

Suddenly, rare earths — a relatively obscure set of industrial minerals, oxides and metals — became the stuff of high international attention and intrigue. It became common knowledge that China controls about 97% of the world's rare earths output. Overnight, the dire industrial and political implications of that national monopoly became apparent.

People were — and are — right to be concerned. Just last month, we learned that the value of China's rare earths exports has soared almost ninefold, year on year.

That is, a tonne (i.e., a metric ton) of Chinese rare earths — a weighted composite of 17 different materials — currently rings the cash register for just over $109,000. This is up dramatically since July 2010, when each tonne averaged buyers a mere $14,405.

In other words, China is raking it in. In fact, the price of rare earths out of China has averaged about a $10,000 increase per tonne per month over the past year!

It gets worse for non-Chinese users. In February China reportedly exported a total of 750 tonnes of rare earths to a global array of buyers. This was slightly more than the 647 tonnes China shipped in January. Yet in just this one month, the average price for a tonne of rare earths leapt ahead by $34,000, according to a calculation by Reuters News Service based on data from China's customs office.

The rapid increase in price is due to the Chinese government's successful effort to restrict and reduce the volume of rare earths exports. Adding to the confusion, China has also changed the way it reports rare earths exports. This has artificially boosted the volume figures by including products made from rare earth metals in the total.

Could things get worse for Western buyers and users?

Well, yes. Also last month, we learned that China may soon start importing some of the rare earths that its economy needs but doesn't produce in sufficient quantity.

According to Liu Junhua, the deputy secretary for China's Baotou Rare Earth High-Tech Industrial Development Zone Committee, "China may eventually need to import [heavy rare earths] materials." According to Mr. Liu, speaking at a recent conference, there's a "strong possibility of [China] importing heavy rare earths" in the next three-four years.

So here's the scenario. Chinese export volumes are down. World prices are rising, and fast. And China may soon be importing the heavy rare earths for its own industrial needs. In the world of resource investing, this is exactly how profits are made.

Looking back toward the end of 2010, pretty much any company with a "rare earths" tag line was a strong performer in the stock market — take U.S. based Molycorp (NYSE: MCP) for example. The investment community threw big money at a large stable of rare earths investment opportunities. But times have changed.

In the past six weeks or so, in the face of tight demand and fast-rising prices, investors have looked at the rare earths sector with even sharper, more discerning eyes. The rationale is twofold.

First, only a few non-Chinese companies will achieve output — and begin to generate cash flow — within the next three years. And second, only a small handful of companies will survive in the long-term race to supply the world with rare earths over the next decade or so.

It's still up in the air which companies will achieve output.

Sticking with my example from above, let's take a look at Molycorp. Molycorp is reconstructing its mine, mill and other facilities at Mountain Pass, Calif. It's a major effort, with a sticker price in the vicinity of $500 million. The announced time scale is in the 24-month range. But here's my concern…

The California project involves building a brand-new plant, with new equipment and bringing in a newly hired work force that's still in training. Anything could go wrong and cause delays. And considering that it's happening in mining-unfriendly California? I'm sure you get my point.

So where to from here?

Clearly, the rare earth supply crunch is unfolding in front of our eyes. It's important to note, though, that we're still in the opening rounds of this resource battle. Over the next two years major rare earth producers will pan out and now's the time to invest in a handful of your favorites.

That's all for now. Thanks for reading…

source http://dailyresourcehunter.com/with-rare-earth-prices-increasing-nows-the-time-to-buy-rare-earth-producers/