All smartphones, hybrid-electric vehicles and high-powered magnets utilize rare earth materials - but finding and mining these elements can be challenging and expensive.
Mining companies may provide an opportunity to profit from the rising demand for REEs, particularly if they produce high-purity neodymium and praseodymium oxides. But investors must bear in mind the possibility of supply disruption.
Rare earth metals such as neodymium, lanthanum and cerium are crucial elements in industrial and technological products ranging from computer hard drives and loudspeakers to hybrid cars and missiles. But their widespread use masks a dirty little secret: most rare earth minerals come from conflict zones that fuel environmental destruction, land theft and brutal militias linked to Myanmar's secretive military government. An AP investigation using customs data, corporate records and satellite imagery along with interviews conducted with local people as well as research conducted by Global Witness revealed that over half of world rare earth minerals come from conflict zones.
Congress mandated disclosure of "conflict minerals" such as tantalum, tin, gold and tungsten in 2010, following conflict in Congo; however rare earths were exempt from this legislation. Reshoring could provide some relief; however reshoring would likely prove costly and take years to increase mining and refining capacity - especially considering China is still dominant among rare earth supply chains and is increasing its political leverage over rare earth supply chains.
Investors looking to gain exposure to the rare earth market can do so through shares of recycling companies such as Metal Tech Recycling Corp (NASDAQ: MTRX) in the US or Geomega Resources (GOMRF) in Canada. But for maximum returns from rare earths' rising demand, investors should invest in stocks engaged in production or processing such metals; exchange-traded funds like Market Vectors Rare Earth/Strategic Metals ETF (REMX - Free Report) offer an easy way of diversifying your portfolio with these stocks.
Rare earth metals have long been referred to as the "vitamins of modern technology," with use spanning across an expansive variety of industrial and technological products. Neodymium can be found in computer hard drives, loudspeakers, hybrid and electric vehicle engines and loudspeakers; cerium plays an essential role in producing catalytic converters; while lanthanum and yttrium play a vital role in manufacturing rechargeable batteries - plus many also contribute towards green energy as they can be found in wind turbines or hybrid engine designs - these minerals play essential roles when creating powerful magnets found within computer hard drives, loudspeakers loudspeakers loudspeakers or hybrid and electric vehicle engines - in fact many applications rely on rare earth metals to be produced.
Problematic rare earth minerals don't come easy. The United States currently relies on China for about 80% of its rare earths; such an arrangement could prove problematic when China and the U.S. enter a trade war, leading Congress to attempt to address this issue through legislation proposed by former Republican congressman Mike Coffman who initiated the Conflict Minerals Act back in 2010: this legislation requires companies that purchase these rare earth minerals to disclose where they sourced them and pledge not to purchase from sources that support armed groups.
Mining for rare earth metals is dangerous and costly, and finding enough deposits to supply global demand can be challenging. China currently holds 33.8% of total reserves while Vietnam (16.9%), Russia (13.2%), and then United States (3.1% of world reserves). While new processing facilities take years to come online, investors could consider ETFs like Market Vectors Rare Earth/Strategic Metals ETF (REMX -2.05%) to gain exposure in this sector.
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Rare earth metals are essential components of modern life, forming magnets used in hard drives and cellphones, catalytic converters for hybrid car engines, military jet engines and batteries, wind turbines and electric vehicle batteries. Furthermore, their limited supply has resulted in skyrocketing prices, hitting 10-year highs recently.
As such, many investors are seeking ways to invest in rare-earth companies. Before diving in however, it's essential that investors understand this commodity. Rare-earth minerals and metals can be found globally in small amounts but extraction involves using intense mining techniques which may cause environmental damage; production in particular tends to center around China with its largest refining capacity globally.
Demand for these metals is on the rise, yet its future price remains unpredictable. Furthermore, supply may decrease due to companies opting for alternative materials; however there may be opportunities to boost margins through value-adding activities and offset falling prices.
Denotwithstanding, demand for rare earths is expected to increase by 300% to 700% by 2040 due to their use in green technologies like electric vehicles that demand large quantities of rare-earth magnets.
Governments and private investors alike are seeking ways to increase production. Many firms are working on reopening mines or opening new processing plants, such as RTI International Metals which recently posted strong first quarter results with sales up 14% and record backlog levels.
With such an innocuous sounding name as "rare earth", one might assume these metals are scarcely found. Yet rare earth elements (REEs) are actually quite abundant; however, their concentration deposits often lie within specific countries, leaving them susceptible to geopolitics and supply chain disruptions. Furthermore, their minerals themselves require complex transport procedures and require special refining processes that have negative environmental impact.
Global economies depend heavily on these elements: hard drives, cell phones and loudspeakers use them daily, as do wind turbines and hybrid cars - yet a recent AP investigation reveals their mining can lead to environmental destruction, land grabs and money going directly into brutal militias - and this trend seems set to get worse as demand for these metals continues.
China dominates world rare earth production and extraction. Over recent years, they have taken steps to increase domestic capacity by restricting exports of rare earths materials as well as encouraging foreign companies to find other sources. But reshoring isn't simple: even if China opened up their own mines it would take several years before producing enough raw materials for high-tech manufacturers worldwide.
To ensure the sustainable production of rare earths, companies that utilize them should pay an ethical sourcing premium and support government policies that encourage it. If mineral supplies were abundant enough, this process may be simpler; unfortunately however, that seems highly unlikely at present.
Demand for rare earth metals is driven by manufacturing, electric cars and large infrastructure projects like wind farms; but their supply is limited because rare earth elements are difficult to mine or process; taking a lot of ore to produce even small amounts. Furthermore, due to their similar atomic structures combining together they're hard to separate from other minerals making recycling operations even after mining operations have concluded more challenging.
China now dominates rare earth extraction and production, which it uses to leverage its geopolitical influence in an economy where manufacturers seek to relocate production costs lower production cost countries like China. This may have long-term ramifications for the United States which once led the industry but has since fallen off to become just a minor player.
Electronics manufacturing is one of the primary users of rare earth metals, which are essential components in many small devices and larger-scale electronics systems. Smartphones use neodymium magnets to improve sound from tiny speakers while lanthanum helps reduce distortion in mics and lenses, and fiber-optic communications networks rely on erbium-doped amplifiers to transport data and phone calls at affordable rates worldwide.
Rare earth miners don't enjoy the same environmental protections and supply chains can be exposed to political instability, among other risks. Furthermore, should other nations develop cheaper and superior alternatives for some rare earth metals, demand may drop, diminishing your investment returns along the way.