Molycorp CEO: No Rare Earth Bubble

Molycorp CEO Mark Smith on Tuesday said there isn't a bubble in rare earth prices and apologized for comments made to the contrary on CNBC two months ago.

"I also don't think that these short-term prices are things that people ought to be counting on because they are really spiked right now and we think there maybe a form of a bubble occurring because of all of the news and the frenzy that's occurring," Smith said on "Fast Money" on Oct. 21.

Seven days later, he told Bloomberg, "I don't believe there is a bubble ... These prices are absolutely sustainable and that's really based upon the very simple facts of supply and demand."

So what happened?

"Well, I got a lot smarter, number one. And I learned how to do interviews a lot better," said Smith, apologizing for what he called an "error."

"We are absolutely bullish on prices. We think these prices are absolutely sustainable and we think that the simple supply and demand fundamentals support the prices that we are bullish on."

Speaking of prices, two U.S. senators are concerned that China's grip on supply will drive prices even higher. On Thursday, Senators Evan Bayh, D-Ind., and Kit Bond, R-Mo. introduced legislation that would create a strategic rare earths reserve.

Smith is heading to Washington D.C., where he'll meet with members of Congress on this issue. The 51-year-old executive didn't say whether a reserve is needed, but said there are some "very big concerns" for prices in 2011 and supply is chief among them.

"The rest of the world, everybody outside of China, is going to need 55 to 65,000 tons of these materials and the Chinese government is going to limit those exports to probably somewhere around 25,000 tons," Smith said. "There's a huge gap there and Molycorp is going everything in its power right now to increase production."

Meanwhile, Smith said Molycorp will partner with Japan's Hitachi to produce rare earth magnets. The project will take place on U.S. soil, where Molycorp will be produce magnetic alloy material that will then be used in a joint venture with Hitachi to make rare earth magnets. Smith said the two companies will split the cost.

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Trader disclosure: On Dec. 21, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Pete Najarian owns (KRE) calls; Pete Najarian owns (YHOO); Pete Najarian owns (MSFT) call spreads; Pete Najarian owns (AKAM) call spreads; Pete Najarian owns (V) call spreads; Pete Najarian owns (WLT) call spreads; Pete Najarian owns (C); Pete Najarian owns (MS); Pete Najarian owns (NKE) call spreads; Pete Najarian owns (GE); Pete Najarian owns (F); Pete Najarian owns (BBY) calls; Pete Najarian owns (SMH) call spreads; Pete Najarian owns (M) call spreads; Pete Najarian owns (HK) calls; Pete Najarian owns (MRO); Pete Najarian owns (CNI); Cortes is short (XRT) vs. (SPY); Cortes is short (BAC) vs. (SPY); Cortes is short (MOS); Cortes is short (LVS); Cortes is long USD vs. Mexican Peso; Cortes is short European Stoxx Index; Cortes is short Corn; Cortes is short Nat Gas; Cortes is short Gold

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