Investing in the Future: The Power of Rare Earth Metals

The investment industry is facing unprecedented transformation. We explore how firms can adapt their businesses in order to succeed in an evolving landscape.

Strong signals from policy makers regarding the speed and trajectory of energy transitions as well as growth trends of key clean technologies can encourage investments in REEs from multiple sources.

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1. They’re in everything

Rare Earth elements--17 metals arranged near the bottom of the periodic table--are essential to both national security and consumer technology. Their use includes green technologies like General Electric wind turbines and Tesla electric cars; medical tools like Philips Healthcare X-ray scanners; as well as military hardware such as F-35 jet fighters.

Modern products almost certainly contain rare earth elements; even lighter flints use permanent magnets composed of neodymium-iron-boron material, and the electric motors and speakers of cars use both rare earths. Without rare earths' aid, climate collapse would almost certainly occur and their use has to be used as an effective mitigation strategy.

Rare earths may have an unfavorable reputation, but they're actually relatively abundant on our planet's crust. Unfortunately, as their name implies, however, their extraction and processing are extremely challenging in large quantities; furthermore they're both costly and challenging to recycle.

Ceria, Samarium and Ytterbium metals have long been an essential component of commercial and defense technologies as well as renewable energy systems, making them essential components of renewable energy solutions. Most trivalent elements - Neodymium, Praseodymium and Terbium- make up this group, with some also having fourvalent properties such as Cerium Samarium or Ytterbium being more frequent options.

As our world becomes more dependent on rare earth minerals, investors have more options for investing in them. One strategy involves purchasing mining company shares which produce or process rare earth metals; another strategy includes buying shares of companies that separate and process rare earth minerals; one popular choice being VanEck Vectors Rare Earth/Strategic Metals ETF (REMX), which contains a selection of Chinese, American and Australian companies involved with rare earth production or processing.

Political or economic events could pose the greatest threat to investments in rare earths producers, which entails political or economic events that disrupt production and prices. As China currently mines and processes most of the global supply, China has become a central issue in trade negotiations between the US and China; President Xi Jinping threatened to reduce exports as leverage against President Donald Trump's administration.

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2. They’re in the military

Rare earth elements are integral components of modern military technology, including batteries, magnets, lasers and electric motors. Each F-35 Lightning II aircraft, one of the Pentagon's most expensive weapons systems and first fighter jet designed to serve all three branches of service at once, requires approximately 920 pounds of rare earth materials according to a 2013 report from Congressional Research Service. Rare earths such as yttrium and terbium are utilized for laser targeting weapons systems as well as Stryker armored fighting vehicles Predator drones and Tomahawk cruise missiles among many others.

As the United States no longer produces rare earth metals or processes them at key points in their supply chains, its dependence on Chinese suppliers for these materials could become increasingly unstable over time. Chinese leaders have historically restricted exports due to national needs and environmental impact. Therefore, Kelly's Restoring Essential Rare Earth Elements in Defense Act of 2022 calls on the military to establish a strategic reserve of rare earths as well as require contractors tracking source of equipment containing rare earths.

Energy companies are major users of metals like these, particularly in fluid catalytic crackers that turn oil into gasoline and other fuels, wind turbine magnets, hybrid powertrains on Toyota Prius cars, as well as new wind turbines which may require up to two tons of neodymium for their operation. Renewable energy initiatives may further fuel demand. For instance, Toyota requires two pounds of neodymium while wind turbines may use as much as two tons.

Recent attempts by the US to become a key player in rare earth metal supply chains have included efforts at reclaiming some lands used by China's mining operations, developing more effective technologies to reduce production costs per unit of output, and rebuilding domestic processing industries. Under President Biden, these initiatives have received new life.

3. They’re in E-bikes

Clean energy technologies - such as electric vehicles - are vitally needed worldwide, yet their development will require rare earth metal production at rates far beyond current capacity. There is thus an apparent disconnect between global climate ambitions and available minerals such as cobalt and lithium.

One of the primary uses for REE is permanent magnet motors, used to produce power for electric bicycles and increasing numbers of automobiles as well as wind turbine generators and solar panel systems. While these technologies present several challenges when developed, including cost versus performance and recycling at end-of-life.

REE are a group of seventeen metallic elements found on the periodic table, comprising fifteen lanthanides plus Scandium and Yttrium. While not necessarily rare or hard-to-come-by, mining these metals is complex due to technical considerations.

As such, the industry is particularly vulnerable to supply risks. A single nation can easily restrict exports of rare earths, prompting price spikes. China significantly restricted rare earth exports in 2010 which caused panic buying and skyrocketed prices of rare earths.

New sources of REEs are starting to become available, with companies like Lynas and MP Materials working to increase domestic production; however, this will take time.

Even with increased domestic production, it will remain challenging to reduce dependence on foreign suppliers. The United States currently imports most of its REE supply from China - something likely to remain true under President Biden who has taken an aggressive stance towards Chinese geopolitical competition and national security concerns.

Sustainable and socially-fair production of rare earths will depend on consumers and manufacturers' willingness to pay more for materials produced ethically. Mechanisms within and beyond governments will also be required to ensure these goals are actually reached.

4. They’re in batteries

Rare earth compounds are an integral component of electric vehicle and hybrid-electric car batteries, and with more consumers turning towards such vehicles due to climate change and air pollution concerns, their usage will only continue to increase.

As demand outstrips supply, prices may become prohibitively expensive.

Rare earths differ from traditional commodities in that their supply can become limited, which usually causes prices to spike as demand outpaces supply. But their rarity makes their extraction particularly challenging: most rare earth elements only possess three valences, unlike most metals used daily which all possess four. That makes these minerals extremely hard to locate and extract from the Earth.

So a single mining company can quickly dominate an entire market; and should they decide to restrict exports, this can quickly raise prices - something which has occurred multiple times in the past.

China's restrictions on rare earth exports in 2010 caused prices to soar 500% within just a few years - providing miners and manufacturers alike with an unpleasant wake-up call that required them to reevaluate old rare earth opportunities while seeking out new ones.

Rare earths not only play an essential role in green energy generation but they have other critical uses such as catalysts and phosphors that reduce air pollution by lighting electronic device screens, but they are also essential components in polishing compounds used to produce optical-quality glass products.

One of the major issues within the rare earths industry is that many elements are produced through polluting processes and thus may be difficult to produce sustainably and socially responsibly.

That is a huge issue for the United States. While once considered one of the leading producers of rare earths production, its output has plateaued since the 1980s and it now relies entirely on imports for its raw material needs. Though attempts are being made to increase domestic production through investments like Molycorp's Mountain Pass facility or other mines like it are being attempted; most raw material ends up going directly to China for processing purposes.