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3 Rare Earth Stocks To Watch In 2013

3 Rare Earth Stocks to Watch in 2013

Eager to escape the price drops that hit most commodities in 2012, investors are looking to fill their 2013 portfolios with safe bets. While the majority will likely turn to gold or other precious metals, rare earths could be in for a rally in 2013 especially if prices rebound and the market ends up supply-constrained.

Coming off record highs, prices for rare earth elements (REEs) plunged in 2012. Factors behind the price implosion include: weak economic growth in the major rare earth consuming nations, including Japan and the US; slow growth in China, which along with being the world's largest producer of rare earths, is also the largest consumer; additional supply from non-Chinese producers like US-based Molycorp (NYSE: MCP), which earlier this year re-opened its REE processing facility in California; an increase in Chinese annual REE export quotas; and Chinese domestic overproduction.

Despite the price pullback, potential investors should realize that prices are still well above the levels recorded prior to the price surge of 2011.

While a substantial increase in global REE production has been forecast - considering ramped-up production from Molycorp  and Lynas' (ASX:LYC) rare earth processing facility in Malaysia - there has also been a high level of uncertainty surrounding the sector's supply future, as China came under increased scrutiny regarding its export policies this past summer. If the global economy is to see any upside over the next 12 months, supply uncertainty, ergo higher prices, could very well work in the favor of producers as countries scramble to lock in REE supplies.

If that happens, a number of well-placed juniors currently trading at substantial discounts to their actual worth are ready to fill any supply gap. Here is a look at three juniors that are poised to take advantage of a short-term market upswing:

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