This was rather fun really.
Wideboys with their sights set on anyone lucky enough to have savings have found yet another wacky investment to flog.
We’ve already warned about landbanking, carbon credit trading and wine investment. Now it’s the turn of “rare earth metals”.
It’s true that a string of obscure elements are crucial in the production of hi-tech goods such as mobiles and flat-screen TVs.
And firms that tout these metals as a great investment claim that prices will rocket because China controls most of the production and will be cutting back on supplies released to the West.
But the Financial Services Authority has just warned there is “a strong possibility of fraud” if you fall for the “dubious, high-pressure sales tactics” of reps selling these metals, adding that it has seen no evidence that you can make a profit from buying the stuff.
“We are looking at profits of around 40% to 60% per year for the next two to four years,” gushed Galissard Ltd “broker” Zoeb Manji to Penman – who was posing as a potential investor – before adding that rare earth metals will be “the next big thing”.
“In 12 to 18 months’ time the market’s going to go into a super-spike, when the price of a commodity hits new highs caused by supply shortages. It’s a low-risk, high-return investment.”
I was asked to try and advise on some of the technical stuff. Which was indeed rather fun. Tracking through how these various peeps were too incompetent to even copy Wikipedia accurately on their websites. Talking to the ultimate supplier (who was rather embarrassed at having supplied actually).
The basic point that came out was, as I’d been saying all along, was that the closer you got to someone who actually knew anything about rare earths then the crazier and crazier they thought the basic idea was.
*Commentary by Tim Worstall, rare earth metal expert and senior fellow at the Adam Smith Institute:
Rare earth metals are an incredibly bad thing for consumers to invest in. Firstly, how are you going to sell them on?
Unlike buying shares, there’s no network of brokers to sell them on your behalf.
Sure, hi-tech industries use them during production, but are you going to go to a car manufacturer and tell them: ‘I’ve got lump of lanthanum, what will you give me for it?’
No company would buy the small amounts being offered to consumers as the cost of testing each batch would be prohibitive.
The firms touting these investments aren’t even selling the metals, they’re selling the oxides. That’s like the difference between iron and iron oxide – which is rust.
These £5,000 investments are probably worth nearer £700 – if you’re lucky.
Oh, and my guess is that market prices will fall, not rise.
And guess what the industry news is today?
The shares and rare earth prices plunged in 2011 as buyers pursued alternative raw materials and used stockpiles. Lanthanum oxide, a rare earth used to refine gasoline, has dropped 53 percent this year, according to Shanghai Steelhome Information data. Cerium oxide, used in glass polishing, has declined 56 percent and neodymium oxide, used in magnets, has fallen 46 percent, the data show.
There’s a number of firms out there touting this investment. It’s not one for the private individual at all: flee, run away!