"What it does, clearly, is bring a new factor into the consideration of supply of critical materials," said Dudley Kingsnorth, director of Industrial Minerals Co. of Australia, a forecaster in Perth.

The U.S. Congress's investigative arm, the Government Accountability Office, in April warned of "vulnerabilities" for the military because of the lack of domestic rare-earth supplies. The House of Representatives Armed Services committee will hold a hearing in October, the same month a Pentagon report on how to secure future supplies of the metals is due.

"The department has long recognized that rare-earth elements are important raw material inputs for many defense systems and that many companies in our base have expressed concern regarding the future availability of the refined products of these elements," Brett Lambert, director of the Pentagon's Office of Industrial Policy, said.

While two rare-earth projects are scheduled to ramp up production by the end of 2012 -- one owned by Molycorp Inc. in California and another by Lynas Corp. in Australia -- the GAO says it may take 15 years to rebuild a U.S. manufacturing supply chain. China makes virtually all the metals refined from rare earths, the agency says. The elements are also needed for hybrid-electric cars and wind turbines, one reason supply may fall short of demand in 2014 even with the new mines, according to Kingsnorth of Imcoa.

Eoin Treacy's view A long-term contango can convince even the most strategically minded person to dissolve inventory because it will be viewed as a depreciating asset for as long as cheap supplies are abundant from other sources. The US Government is not the only consumer of commodities to have assumed that the supply of necessary raw materials was always going to be both ample and cheap. However, while the automotive industry and others have re-learnt the art of inventory management over the last decade some, especially governments, have been slow to change attitudes.

China's dominance of the rare earth metals sector lends an added impetus to those who rely on these elements and a concerted attitude to supply chain management is required if an "every consumer for itself" attitude is to be avoided. (Also see Comment of the Day on September 13th and on a number of previous occasions).

Shares of companies seeking to ramp up production of these metals outside China have surged of late. Some have become well and truly overextended, so some consolidation of recent gains appears warranted. However such is the demand for these metals and the need for secure supply is so pressing that companies most likely to begin production have a sound medium to longer term investment thesis and would be best bought following reversions towards their mean depicted by the 200-day MA.

Lynas Corp pulled back sharply last week but has recouped the loss and is retesting the high. A sustained move below A$1.20 would likely signal the onset of a reversion towards the mean.

Rare Element Resources, Alkane Resources, Quest Rare Minerals and Avalon Rare Metals have all posted long tails on their most recent weekly candles which suggests that they have hit at least short-term peaks. Breaks of their progressions of rising lows would confirm that a medium-term peak has been reached and increase scope for a mean reversion correction.

Arufura Resources, Great Western Minerals, Neo Material Technologies and Matamec Explorations are all testing areas of prior resistance at the upper side of year long ranges and sustained breakouts are needed to reaffirm their medium-term uptrends.