Rare earth elements are integral components of modern technologies. From hard drive magnets containing Neodymium-iron-boron (NIB) permanent magnets to yttrium-stabilized zirconia ceramics, rare earth elements play an integral part.
But these metals can be difficult to locate and extract, with China having almost total monopoly due to trade war restrictions affecting exports. Can investors profit from such an intricate narrative?
Rare earth elements are expected to experience global growth in demand in coming years due to rising industrialization, building and construction activity, digitization efforts by governments in developing economies, the rise of electric vehicles (EVs) and stringent rules on carbon discharges leading to development of non-conventional energy sources (which increase rare earth mineral consumption).
Though rare earths production worldwide is fragmented, China accounts for 88% of refined production due to low prices and migration of downstream customers to their country of origin. Furthermore, due to a lack of domestic refining capacity in Western countries it becomes harder to compete with Chinese costs and thus China becomes an essential source for rare earth production.
As such, many of the world's largest rare earth companies have established refineries in China to control their supply chain and manage political tensions between Beijing and the US and EU.
However, some steps are being taken to decrease China's reliance on rare earths by governments and manufacturers who recycle rare earths in products like washing machines and air conditioners - potentially decreasing demand in the long run.
Other measures being implemented by mining and production entities to mitigate environmental impact include minimizing mercury from processing and improving rare earth smelting efficiency. Furthermore, using lightweight materials such as samarium-iron-boron and yttrium-lanthanum has decreased use of neodymium permanent magnets, the primary consumer of rare earth metals.
Rare earth metals may be growing quickly, yet not yet mature enough for large investor interest. Therefore, it's crucial that investors carefully assess any unique risks associated with investing in an emerging technology like rare earths metals as an alternative investment that could diversify your portfolio and bring strong returns - just make sure that you consider all environmental, social and political risks when making decisions to purchase rare earth metals! If done so successfully your portfolio could flourish significantly!
Rare earths do not actually constitute "rare" elements in Earth's crust; however, their concentrations are often low and often mixed with radioactive materials in their ore. Furthermore, extracting rare earths requires powerful chemicals which create wasteful waste streams.
Mining rare earths is an expensive and environmentally harmful process. Furthermore, mining cannot be sustained indefinitely; thus explaining why the United States has struggled to become self-reliant in these technologies. A supply scare in 2010 caused refinery operators to temporarily stop using lanthanum for improving refining efficiency while glassmakers abandoned cerium polishing products. Still, military demand represents less than 5 percent of total rare earth demand globally; so even in a temporary shortage scenario the Pentagon might survive by building inventory stockpiles of rare earths minerals while pressuring other industries to pay more.
At its heart, rare earth extraction and separation processes are inefficient. Being chemically similar, elements often adhere together and must be dislodged by using caustic sodium hydroxide or organic molecules with strong affinity for specific metal atoms - which leads to wasted material that must either be properly disposed of or reused elsewhere in other processes.
Researchers are exploring options that would reduce the industry's environmental footprint. One Harvard researcher is developing ways to separate rare earth elements using bacteria instead of toxic chemicals, while scientists are exploring whether rare earths could be extracted from coal waste to reduce dependency on foreign suppliers.
Recycling alone won't solve this issue - there simply aren't enough used batteries and devices available to meet current demand for rare earths, without an expanded strategy that includes both recycling and new methods of extracting and processing REEs, global known reserves may run dry sometime after mid-21st century.
Companies such as Lynas and MP Materials are working hard to increase domestic production, yet are faced with numerous difficulties ranging from insufficient technical expertise and political obstacles to environmental considerations.
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Rare earth metals are essential in producing solar panels, cell phones, computer chips, medical imaging equipment and jet engines - as well as wind turbines and electric vehicles. Mining these minerals is difficult and expensive - most rare earths mined globally come from China.
Rare earths are typically extracted through complex processing of ore deposits, which can be costly and hazardous, as well as being restricted in many countries due to environmental regulations. Mining companies face tough competition from black-market producers who use various means to source rare earths; from producing them at smelters to mining them from ocean floor deposits or even harvesting it directly off of the Moon! Yet despite being more costly, rare earth metals remain highly sought-after due to their unique properties.
Neodymium and praseodymium rare earths are two highly sought-after light rare earths used for electric car magnet production and renewable energy wind turbines, respectively. Recent years have witnessed dramatic price increases as demand for green technology increases, and during China's trade war these prices skyrocketed as companies without diversified supplies bid aggressively to acquire enough materials to satisfy market demand, according to Kose.
Heavy rare earths are less commonly used but equally essential for battery-powered technology like electric cars. Their demand has steadily grown alongside the move away from internal combustion engines to electric motors; however, demand has not been as great for heavy rare earths due to limited supply; making them harder to find than lighter elements.
Mining, extracting and processing rare earths can be costly; thus making entry to this industry hard for many African nations. The United States spent $156 million building its rare-earths separation plant in Texas whereas most African nations don't possess sufficient funds to construct similar facilities.
Investors have recognized Africa's rare earth reserves' enormous potential. By 2021, sub-Saharan Africa had lower exploration budgets than Canada, Australia and Latin America while outstripping Asia by more than double and surpassing Europe by almost three times.
Rare earth elements don't live up to their name despite popular perception. Found all across Earth in small concentrations that make mining possible, these 17 metallic members of the periodic table can only rarely be mined commercially due to high costs and energy requirements associated with extraction; their chemical properties make separation from one another and other materials challenging; current production methods utilize large amounts of ore and produce harmful waste products in order to produce even small amounts of rare earth metals.
As we adapt to a world with ever increasing demands for electric cars and renewable energy sources, rare earth metal supplies could become scarcer as demand surges for them - meaning prices of these minerals could surge accordingly and investors could stand to make significant returns by investing in companies mining these essential elements.
The United States has attempted in the past to regain the market dominance it enjoyed in the 1980s and 1990s for rare earths, but those attempts failed as manufacturers relocated overseas and China increased production and exports. Nonetheless, President Biden is committed to reestablishing US leadership in this arena through investments in climate change technology as well as national security defense systems that require rare earths.
Investors can gain exposure to rare earth elements through various investment vehicles, including mining companies and rare earth metals funds and ETFs. Rare earth metals funds provide broad exposure to companies which mine for these metals as part of their mining activities - offering diversification alternatives compared to more traditional metals funds and adding an exciting touch to portfolios that already include gold and silver.
An additional approach would be to invest in companies that specialize in recycling rare metals after their useful life has ended, taking advantage of both steady demand for rare earth metals while mitigating some of their negative environmental impacts through sustainable practices such as recycling. Their success depends ultimately on whether consumers and manufacturers are willing to pay more for materials produced ethically and sustainably.