The Impact of Rare Earth Elements on the Global Investment Landscape

Understanding global investment landscapes requires taking a broader view than simply viewing local dots. In this article, three considerations related to rare earth elements (REEs) will be examined.

REEs are essential elements to producing cutting-edge equipment and technologies [1]. Their use requires complex mining and production processes that involve water-, energy- and chemical-intensive operations.

Supply

From cell phones to fighter jets, numerous devices and machines depend on rare earth elements for proper functioning. But their complex supply chain makes it hard to accurately estimate how any disruptions might impact global markets; most rare earth elements are mined and refined primarily in China, making it the main player.

Prior to the 1980s, REE production was dominated by the United States; however, labor laws and strict environmental regulations caused production costs to decrease abroad; China took full advantage of this change and quickly overtook all other producers worldwide combined in producing REEs - accounting for 97% of global REE production by 2010.

That dominance had an immediate impact on pricing: when China decided to reduce exports during a diplomatic dispute with Japan in 2010, rare earth prices skyrocketed sevenfold - prompting calls for nations to diversify their rare earth imports and to explore domestic mining/refining operations.

But such efforts to increase domestic production face difficulties. According to experts, the US does not possess the technology required for competitive extraction and refining with China; also, investment necessary to bring these processes online is costly and time consuming.

Although REEs are highly desired materials, their market remains small and vulnerable due to the complexity of producing useful products from raw ore.

As well as logistical and technological difficulties, rare earths markets are affected by other factors, including scientific advances that lead to substitute materials, the discovery of nontraditional sources and expansion of recycling services, as well as large sustainable deposits being created.

Taiwan has taken steps to decrease their REE import reliance by working towards creating a circular economy for these important metals, developing their own rare earth reserves, and exploring alternative sources; one potential resource of REEs could lie within aluminum production's "red mud" residue.

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Demand

Considerations must be given when discussing rare earth elements, and their demand and use. Rare earth metals are found in high-tech components such as permanent magnets and catalysts, rechargeable batteries, LED lights and displays as well as renewable energy technology like wind turbines and electric vehicles - they play an essential part in modern societies' most advanced technologies, and help promote sustainable development.

However, there are various factors limiting supply growth. Mining and refining of REEs require considerable resources. Furthermore, increasing production for one REE often increases production for all others as they are mined as one combined ore before chemical processing separates them out into their separate elements. Thus it becomes difficult for global REE industry to meet growing demand.

Even with these limitations, there can be no doubt that REE demand will ultimately outstrip supply; the exact timeframe may depend on each element individually due to those with demand growth rates significantly greater than average.

As such, it is imperative that a strategic reserve of REEs be maintained so as to guarantee adequate supplies in the future. Policies should strive for geopolitically stable supply chains with responsible mining and refining practices in place; in addition, policies should encourage flexibility wherever possible and foster technological supremacy.

Finally, global rare earth supply chains need to diversify beyond their current dependence on China. To do this, significant investments in new infrastructure - refineries and production plants for producing oxides and magnets - will be necessary. Texas economy is well positioned to lead this effort since Texas contains one of the largest domestic reserves of REEs as well as being home to manufacturing technologies such as high-tech military weapons, clean energy technology and electric vehicles that utilize REEs extensively.

Texas lawmakers recently proposed legislation that would offer tax incentives to companies looking to build REE refineries and production facilities within its borders, helping reduce dependence on China while creating jobs.

Technology

Rare earth elements play an essential role in many of today's popular technologies - from smartphones in your pocket to magnets that power an increasing number of electric vehicles on our roads - as essential components. While rare earth elements are found only in small amounts and thus highly sought-after raw materials. Therefore, maintaining an efficient supply chain for high technology economies such as those developing applications for them becomes paramount to successful development of applications for them.

Rare Earths (REEs) are an indistinguishable group of 17 heavy metals typically found in oxide form. Commonly referred to as "rare-earth metals," REEs are widely used across technology applications including renewable energy sources like wind turbines, computer processors, LEDs and hard drives; their unique atomic structures also make them excellent magnets, making them suitable for permanent magnets like those seen holding pictures up on refrigerator doors.

REEs are often intertwined in mineral deposits due to their physical similarities, making separation costly and energy-intensive techniques like physical separation, chemical leaching, or thermal treatment necessary. Furthermore, their relatively rare appearance in rock environments made their use impractical until recent technological advancements made separation more affordable.

REEs are present throughout the world, yet remain concentrated primarily in China due to a combination of factors including its large reserves and relatively lower mining and processing costs. China reportedly accounts for more than 60% of REE mining operations, approximately 84% of processing capacity and 90% of permanent magnet production.

REE monopolies are not in the best interests of western countries, China or investors and can have severe adverse repercussions for global economy. However, new innovations are being created that decrease our dependence on REE mining while replacing toxic chemicals. Harvard researchers recently developed an efficient method for extracting REEs from coal ash without needing acid leaching - an example being this method developed at Harvard.

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Environmental Impact

Mining rare earth elements is not without its costs. Mining operations pollute land, air and waterways, leading to toxic waste releases and deforestation. Furthermore, metal mining activities often cause mercury, arsenic and cadmium contamination which has both direct economic ramifications as well as environmental and social disruptions.

Rare earths smelting and separation processes also contribute to pollution of water, soil and air. Contaminants spread via wind, rain or snow and can enter drinking water supplies as well as food chains; ecosystems contaminated by them include fish and birds; high concentrations have even been detected along Germany's Rhine River as well as recycling facilities in China.

Mining still causes environmental harm, yet many countries rely on imported rare earths from China despite environmental risks; the United States seeks to develop its own resources; according to a 2021 report from Biden Administration officials this development should be seen as an imperative for national security.

China produces approximately 97% of rare earth elements worldwide due to government support, inexpensive labor and lax environmental regulations. Recently however, Chinese firms have come under scrutiny over their monopoly over these elements, raising fears over environmental degradation and potential shortages. China cut export quotas on rare earths in 2010, which caused prices to skyrocket while prompting other nations to begin mining for them abroad.

China has initiated steps to expand its rare earth production capacity and avoid an impending supply crunch by encouraging local companies to invest in mining and processing technology. As a result, more Chinese manufacturers have emerged, though many remain at an early stage of development or depend on imports for key equipment.

Technavio observes a shift in the global rare earth market as many large rare earth metal-consuming nations assess their domestic reserves for development. Australia, India and Brazil show particular interest in this sector - potentially becoming reliable alternatives to China as rare earth supplier nations.