Molycorp Inc (NYSE:MCP) rallied very sharply and ended the last trading session with a huge gain of 77% on the back of the news of Siemens AG (ADR) (OTCMKTS:SIEGY) selecting the company to supply rare earth materials for the next 10 years. The volume exploded to 42 million against the daily average of 8.7 million only, a jump of nearly 5 times. A similar kind of price activity was seen in the first week of February but that rally fizzled out by the end of the month. It remains to be seen if the current rise can attract follow up buying and reverse the long term downtrend.
The rare earth materials supplied by Molycorp Inc (NYSE:MCP) will reach Shin-Etsu Chemical Co Ltd (TYO:4063) first, to be used for production of rare earth magnets. These magnets will be utilized by Siemens in its wind turbines. According to Siemens, the environmental and process innovations built into its rare earth facility by Molycorp Inc (NYSE:MCP), coupled with the greater global diversification and reliability to its supply chain worked in favor of the company. The company is also expected to collaborate with Shin-Etsu and Siemens Wind Power to improve the direct drive wind turbines magnet material to reach zero HREEs (Heavy rare earth element).
Technically, it has been a never ending bear market for the stock in the last decade. Just in the last 12 months, the stock has lost nearly 80% from its 52 week peak. The price action for the last few months were nicely contained in a downward channel, which was broken on the upside yesterday. The bulls will definitely be delighted, but to continue the rally, the strong supply area around $1.20-30 must be overcome and a higher high registered. The long term structure is scary and can bring the bears back any moment, but a rise over $1.30 may give the bulls a fighting chance.
