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, 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’ 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:

NEW YORK — Molycorp's plunge below the value of its net assets is turning the owner of a rare-earth supply that's unmatched in the Western hemisphere into a takeover target.

The Greenwood Village-based owner of the biggest U.S. deposit of metals that go into everything from smartphones to solar panels and hybrid cars handed investors losses of 61 percent in 2012 amid a slump in rare-earth prices, cost overruns at its California mine, a regulatory probe and the departure of its chief executive. Even after the shares rebounded from a record low in November, Molycorp is trading at a 19 percent discount to its book value, according to data compiled by Bloomberg.

Molycorp's low valuation and the chance to lock in rare-earth resources could spur manufacturers from Nissan to Siemens to make a bid, according to Byron Capital Markets Ltd. After expanding its refining and processing operations with last year's purchase of Neo Material Technologies, the $1.3 billion company may even appeal to private-equity firms, Robert W. Baird & Co. said. Goldman Sachs projects that Molycorp could fetch $15 a share in a takeover, a 59 percent premium to its Dec. 31 close.

Molycorp shares Wednesday jumped 10 percent, or 95 cents, to close at $10.39.

South Korea’s dependence on rare earth elements (REEs) from China fell last year as the country diversified its import base.

For the January to November period, REE imports from China accounted for 54.4 percent of total imports, down from 78.4 percent in 2011, according to the Korea Customs Service.

The report adds that the drop in imports was the result of the relatively high price of REEs imported from China — prices averaged $39.21 in 2012, “equal to 101.3 percent of the average price of total imports. The ratio was higher than 91.3 percent in 2011.”

Meanwhile, REE imports from Japan increased to 27.9 percent last year from 7.8 percent in 2011.

China cuts 2013 REE export quotas

Rare Earth Investing News reported last week that China has reduced, by 27 percent, its rare earth export quotas for the first half of 2013.

The country’s Ministry of Commerce announced that 15,499 tonnes of rare earths will be allowed to leave the country; that includes 13,561 tonnes of light rare earths and 1,938 tonnes of heavies. The first-lot quota for 2012 was 21,226 tonnes.

Traditionally, China issues REE quotas in two batches. The second batch for 2012 totalled 9,770 tonnes, bringing the full-year quota to 30,996 tonnes, the highest in three years.

Rare earth elements, as every commodities nerd knows, are in fact not very rare at all. Some, such as cerium and lanthanum, are among the more abundant elements in the earth's crust.

But it is unusual to find the 17 elements that are classified as rare earths in sufficient quantities for economic extraction.

In 2011, however, concerns over the scarcity of these elements -- which are now used in everything from mobile phones and lightbulbs to weapons systems -- sent prices skyrocketing.

"There was a bubble in 2011, after demand for rare earths had rebounded from the financial crisis and the Chinese cut export quotas, reducing supply," explains Carolyn Dennis, analyst at Dundee Securities. "Fears of a shortage caused stockpiling, driving prices to unsustainable levels."

Since then they have plunged, with prices for some rare earths falling as much as 90 per cent in international markets. This year alone, prices for the most important elements have fallen between 50 and 70 per cent, according to Industrial Minerals, a specialist publication that monitors rare earths trading.

Nevertheless, a number of mining companies are still hoping to capitalise on the strategic importance of these rare raw materials.

China currently accounts for more than 90 per cent of global supply -- partly because their production can be a messy and environmentally problematic business -- but some miners are trying to develop rare earths projects to meet demand for production outside China, particularly from countries such as Japan and Korea.

It has not been an easy 12 months for the sector's leading companies, though.

Molycorp and Lynas -- the most advanced in terms of developing commercially producing mines -- have had a torrid year.

Molycorp's share price has fallen nearly 60 per cent this year and, earlier this month, its chief executive resigned, following a range of operational and financial difficulties.