JP Morgan analyst Michael Gambardella cut his rating on rare earth miner Molycorp (MCP) today to Neutral from Overweight as prices for rare earth have tumbled in recent weeks and there is more than the usual uncertainty in the industry. Molycorp stock dropped 20% in midday trading.
“We believe a large part of this year�s run up and recent drop was caused by a host of players in China speculating on rare earth oxides,” Gambardella writes. “While we continue to expect the Chinese government to reduce illegal rare earth supply and consolidate (and restrict) production over time, we are taking a more cautious stance on the stock given the near-term uncertainties that have recently arisen from the news of speculation and the recent downgrade of rest of the world 2011 demand forecast from IMCOA to 40k tonnes from 60k tonnes.”
Rare earth prices have fallen since hitting highs in July, but they are still relatively high, with many rare earths equal to or above their average first quarter prices.
Gambardella slashed his price target to $66 from $105.
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