Rare earth metals are intricate and frequently overlooked components, yet are essential in many modern technologies and in great demand.
Acquiring rare earth metals directly may not be practical, but investing in shares of companies that mine or process them could provide impressive returns. Although all commodities carry geopolitical risks, rare earth metals are particularly exposed.
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Rare earth metals (REEs) are essential components of many of our most prevalent technologies, from smartphones and magnets in electric vehicles, to those found inside laptops and other consumer products. But for over three decades now China has held tight control over this global supply chain of these REEs; regardless of their mining location they usually travel directly to Beijing before being integrated into consumer products.
As such, businesses are finding it increasingly challenging to secure materials they require resulting in rising costs and prices, providing investors with an excellent opportunity to capitalize on this expanding demand by investing in rare earth mining and processing companies or exchange-traded funds (ETFs) that hold such stocks.
While China remains the primary producer of rare earths (REE), many other countries possess potential REE resources and several initiatives are underway to increase production and diversify global supplies. Unfortunately, however, REEs can often be found mixed together in complex mixtures which require significant work to separate and refine before becoming marketable products - yet even after such processes have taken place, a single REE mine can produce only a fraction of global supply.
There are companies working to secure domestic supplies of rare earth minerals by dismantling barriers that have hindered previous attempts. One such effort is MP Materials' award by the Department of Defense to build a rare earths separation plant in Texas; another approach by DARPA uses microbes and biomolecular engineering as natural methods of purifying rare earth mixtures.
At its core, the aim is to reduce dependence on China for these vital raw materials and create a more equitable global supply chain. Although bringing an American rare earths processing facility online may take years--some experts estimate up to 10 years--this investment can safeguard America's technological and economic security in future decades.
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Rare earth elements are used in numerous modern devices and applications, such as catalytic converters and petroleum refining; magnets for wind turbine motors and electric cars; glass additives and polishing compounds; rechargeable batteries; television screens, lighting, X-ray machines - rare earth mining companies offer access to these essential high-tech materials and the industries which rely on them. Investing in rare earth mining companies gives exposure to these unique yet essential high-tech materials while simultaneously supporting vital industries that depend on them.
Rare earth metals are prohibitively costly and difficult to store in large amounts, rendering direct investments impractical for most investors. A better approach would be buying shares of companies that mine or refine these materials - this way offering diversified earnings streams as technology evolves, plus potential growth.
Rare earths make up only a small share of global production, yet only a handful of companies control most global reserves - leaving this sector susceptible to price manipulation and political risks. Furthermore, its lack of infrastructure makes investing difficult as investors struggle with buying and selling rare earth metals in large volumes.
Rare earths shares may not appeal to investors who dislike high levels of share price volatility, yet can provide impressive returns over a longer time horizon and with an appetite for risk.
Investors may wish to invest in rare earth element recycling companies as another strategy that reduces dependence on the mining industry and can act as a protection against potential price increases in the future.
One investment option for rare earth investments is an ETF that tracks an index. One such ETF, VanEck Vectors Rare Earth/Strategic Metals ETF (REMX), includes holdings from leading Chinese, American and Australian rare earth producers and processors.
The UBS STOXX Rare Earth ETF, Europe's inaugural rare earth ETF, shares similar goals. This passively managed ETF tracks an index which represents non-Chinese rare earth companies and provides comparable returns compared to similar ETFs in its category.
Rare earth metals are indispensable tools in our efforts to reduce greenhouse-gas emissions enough to avert climate collapse, from batteries and defense systems to wind turbine magnets and hybrid electric vehicle batteries. Rare earths play an indispensable role in efforts to mitigate global climate collapse through emissions reduction efforts.
At first, it seemed as if these metals would continue to come solely from China's natural resources. At one point in 2010, China controlled nearly 97% of rare earth element production worldwide - but that near-monopoly came to an end after China restricted exports during a trade dispute with Japan and caused an international supply crisis which drove prices skyward by an order of magnitude or more.
While demand for light rare earth elements such as neodymium and praseodymium is rising rapidly, its production requires far more complexity than lighter rare earths.
Heavy rare earths include dysprosium, erbium, holmium, lutetium terbium and yttrium; they're mined almost exclusively in China and may face political issues due to mining practices.
Rare earth mining companies can be difficult to extract, costly and require companies to consider the total business case and costs before committing. When making investment decisions it's essential that all aspects are taken into consideration before making decisions on investments in heavy rare earth mining operations.
As demand for rare earth metals (REMs) increases, more mining projects are emerging around the world. Some proposals might seem farfetched at first glance; but given proper conditions they could work successfully. Key to their success will be developing innovative production methods - for instance reducing rare earth elements consumption or substituting more abundant materials - or minimizing pollution during mining and processing processes.
Establishing a new mine takes considerable time and energy, leaving investors in rare earths dependent upon China for supplies for now. Therefore, companies need to diversify their supply chains so as to protect themselves against supply disruptions in China or any potential disruptions elsewhere in their supply chains. There may be viable alternatives available which provide protection from future supply disruptions.
Rare earth metals (PDF) are essential to modern technology, consumer products and industrial processes alike. From smart phones and lasers to electric vehicles and wind turbines; even national defense uses rare earth metals due to their fluorescent, conductive, magnetic properties; they're even used as catalysts in chemical reactions - with most notable uses including permanent magnets made of neodymium iron boron as well as nickel metal hydride batteries both powering electric vehicles!
Rare Earth family elements are among the hardest-to-produce metals and consequently have become highly sought after, according to Palisade Research who predict that demand will surge by 2,600% within eight years.
But investing in rare earths shares does carry some inherent risks. Your financial goals and circumstances, time horizon, and risk tolerance will ultimately determine if ASX rare earths stocks are right for you.
Rare earths production is highly concentrated among just a few countries, particularly China, raising concerns of supply chain disruptions. Furthermore, the market for these minerals is ever-evolving as new technologies emerge that compete directly with traditional rare earth products; this may cause sudden shifts in demand and prices that affect your returns negatively.
Mining and production of rare earths may have severe environmental repercussions that will draw regulatory scrutiny and public opposition, potentially damaging your share price. Furthermore, extracting them requires labor intensive and costly processes.
There are ways to mitigate risks. One such strategy is investing in a fund that provides broad exposure to mining companies that extract rare earths as part of their overall mining activities, like an exchange-traded fund. Such investments provide exposure to growing demand for rare earths while supporting transition to green economy transition, while acting as diversifier in your portfolio - though you should always thoroughly research all risks and return prospects prior to making any decision about investment decisions.