Rare earth metals may not be at the top of Wall Street's agenda, but their increasing importance to new and emerging technologies makes investing in them increasingly lucrative. Although investing in rare earths carries risks associated with them, investing could yield high returns if properly executed.
However, China controls an estimated 80% of world supply and this reliance can lead to instability in other markets. How can investors leverage China's market?
Pros: Investing in rare earth elements has the potential for high returns due to their widespread demand from technology-related industries that experience continuous innovation. Cons: Rare earth mining companies pose risks when investing. First and foremost is environmental impact: their operations could have serious ramifications on local environments. Extraction processes often create toxic leaching ponds which pollute waterways and harm wildlife. Furthermore, mining and separation operations often produce radioactive byproducts which require special storage precautions.
Political risk is another consideration for investors; if any nation develops cheaper or superior alternatives to rare earth minerals, their demand could decrease and thus limiting return potential for investors. Furthermore, rare earths markets tend to be illiquid due to being controlled by large corporations which make investing difficult for smaller retail investors.
For investors interested in rare earths, one way of investing is buying stocks in mining companies that extract and refine rare earth minerals. There are also a few exchange-traded funds (ETFs) with exposure to rare earths - most notably VanEck Vectors Rare Earth/Strategic Metals ETF (REMX), which holds shares of Chinese, American, and Australian rare earth producers and processors; alternatively some robo-advisors offer ESG portfolios which contain some exposure. Finally you may purchase physical oxides through metal traders - although this option may be less common.
No matter their source of mining, REEs require significant processing before use, which is both time consuming and costly. At present, China controls nearly all separation facilities worldwide; even those extracted in other countries like Lynas Rare Earths Ltd's Australian mine ores are shipped back to Beijing for further refinement.
China has leveraged this situation as an opportunity to strengthen their position over the global market and as a political tool. Since Ronald Reagan's presidency, metalurgists had voiced concern about China's lack of REE production domestically; but it wasn't until 2010, when a Chinese fishing boat hit two Japanese coastguard vessels in disputed East China Sea that this issue became public knowledge.
Refining rare earths is essential to establishing a clean energy economy and transitioning away from fossil fuels towards renewables and electric vehicles, since without it the process may take six times longer.
As we move away from fossil fuels, REE demand will expand exponentially. REEs are used primarily for power generation, magnets and batteries - elements such as neodymium and praseodymium were originally used in gas lamps before becoming key components for electric vehicle battery magnets.
Molycorp was recently acquired by MP Materials (NYSE:MPX), which should help increase Molycorp's output of high-purity rare earth elements like neodymium oxide; praseodymium dioxide; heavy rare earth concentrate; and lanthanum and cerium oxides and carbonates. But mining will need to be supplemented by innovation; therefore governments must provide suitable conditions to foster its expansion.
Rare earths may not be top of mind for investors on Wall Street, but their importance to green technologies cannot be overstated. Rare earths play an essential role in producing magnets that power electric vehicles but there simply aren't enough available right now to produce all needed magnets - which makes investing in this sector appealing - though keep in mind its challenges: technical, geopolitical and environmental restrictions make sourcing rare earths extremely challenging; this puts their supply/demand ratio on an uneven axis.
Furthermore, energy transition minerals tend to have high geographical concentration, with just three producers being responsible for more than half of global output. When it comes to lithium, cobalt, and rare earths imports often meet US needs more effectively than domestic production can do so.
However, there are ways to diversify the supply of rare earth elements, starting with more efficient use of existing supplies. Manufacturers can engineer products that require less or no rare earths - like Tesla has done with their electric car motors; or BMW's new electric cars use no rare earths at all!
Recycling metals can help decrease demand by diverting them from landfills into the supply chain; however, recycling still faces many obstacles and challenges to overcome. REE recycling typically employs acid leaching or heating and melting processes in order to separate out oxides and salts; unfortunately these methods release harmful toxins into the environment.
Research into cleaner, more sustainable extraction, processing and recycling techniques will ultimately be necessary to reduce demand for rare earth materials. Incentivizing product developers who utilize less rare earth elements or replace them with cheaper alternatives will be key.
As rare earth metals become scarcer globally, users are seeking ways to diversify their supply chains. They are looking for alternative materials for creating magnets for hybrid and electric vehicles as well as creating energy efficient screens by using recycled materials, while at the same time helping address environmental concerns.
However, 17 rare earth elements remain essential components in numerous industries ranging from consumer electronics such as Apple AirPods and iPhones to green technologies like General Electric wind turbines and Tesla electric cars. Furthermore, rare earth elements can also be found in national defense equipment, like F-35 jet fighters; thus making these minerals essential components in U.S. economic and national security policies.
As such, China is concerned about becoming dependent upon foreign sources for essential materials like mineral fuels. Therefore, it has devised plans to increase domestic production but this process could take years - although no guarantee can be given as to its success.
U.S. companies reliant on rare earth minerals have begun stockpiling supplies of rare earth minerals to prepare for any potential supply disruptions, like Bell Labs using erbium to increase signals in fiber optic cables, enabling long distance phone calls and internet data transmission; smartphone makers now rely on neodymium magnets to enhance sound from small speakers while yttrium and praseodymium phosphors provide colors in energy-efficient displays.
Investors can gain exposure to the supply chain by investing in stocks of companies that recycle rare earth materials, such as Metal Tech Recycling Corp (NASDAQ:MTRX) in the US and American Resources Corp and Geomega Resources in Canada. These firms specialize in recovering high-purity separated neodymium, praseodymium, yttrium cerium lanthanum from electronic devices and high tech products for recycling into high-purity compounds for recovery.
Rare earth elements are an indispensable component of high-tech products such as cell phones and lasers, wind turbine motors, hybrid and electric cars and hybrid vehicle batteries. Furthermore, rare earth elements play an essential role in efforts to mitigate greenhouse-gas emissions and prevent climate collapse.
Rare Earth Elements, or REEs, play an essential role in many industries ranging from consumer electronics like Apple AirPods and iPhones to green technologies like General Electric wind turbines and Tesla electric cars; medical tools such as Philips Healthcare scanners; military hardware like F-35 jet fighters. Rare earths have such a crucial function that the U.S. government lists them among essential minerals deemed critical to economic and national security.
Rare earths may be abundant on our planet's crust, yet mining and refining them is a difficult endeavor requiring substantial capital and patience. Due to their low concentration levels and scattered distribution, finding an area willing to accept the environmental impacts required of rare-earth mining is nearly impossible, while setting up an REE processing plant can often prove too costly a solution.
So began the decline of America's once-dominant rare earth industry during the 1980s and 1990s as American firms relocated manufacturing overseas, China capitalised on lax environmental regulations, state financing, and increased production to increase exports and increase production and exports. By 2000s end, Molycorp had filed bankruptcy; its Mountain Pass mine has since been purchased by another firm which sends raw material for processing to China instead.
Investors interested in rare earths can gain exposure by purchasing shares of companies that mine or process these minerals - for instance, VanEck Vectors Rare Earth/Strategic Metals ETF (REMX) offers exposure to Chinese, American and Australian producers and processors of rare earth elements (REEs). Or they could purchase REE recycling companies such as Metal Tech Recycling Corp in the US and Geomega Resources Canada which both specialize in REE recycling.