If you are thinking of investing in rare earth metals this article explores some of the investment considerations including the factors that dictate supply and demand and how rare earths are traded.
Rare earth metals are strategically important in our modern world, and much of the existing and emerging technology is critically dependent on them. Their supply and pricing are dependent on many geopolitical forces as well as supply and demand.
Supply and demand of rare earth metals
Demand for clean energy, electric vehicles and consumer gadgets such as smartphones, all of which rely on rare earth metals is increasing all the time; so, the need for ongoing availability of rare earths remains strong.
While, for the most part, rare earths are in plentiful supply on the planet, for a variety of political and economic reasons, not enough of them are currently being mined so supply remains constrained; and this has resulted in a shortfall of the rare earths needed.
Meanwhile, there are ongoing activities to create new sources of rare earths outside China but this requires considerable investment and is much more complicated than simply opening new mines.
What factors impact rare earth metal prices
Rare earth metal prices are subject to the same supply and demand characteristics as other commodities. While there is an underlying cost associated with mining and refining rare earths which needs to be recovered in the price, supply and demand behaviour is the most influential driver of price changes.
Currently, China controls most of the world’s rare earth metal supply, and to maintain this position they have been known to cut back on supply to control the market. They frequently change their rare earth export regimen; for example, during the second half of 2018 they cut production by 36%.
This type of market intervention has a meaningful impact on rare earth prices, although the consequence of this kind of behaviour has encouraged manufacturers to seek out alternative supplies. For example, both Hitachi and Mitsubishi have significantly reduced the quantity of rare earths they use in the manufacture of electric vehicle batteries.
Other countries are attempting to reduce their dependence on China-sourced rare earth metals. India is investigating deep-sea mining for rare earth minerals, Japan is exploring mining opportunities in Vietnam and Kazakhstan, and the US is now sourcing strategic rare earths internally.
A third approach has seen the development of new ways of separating out the various rare earth elements. Currently, the Japanese are investigating the use of centrifugal separation of rare earth minerals from sea mud.
How to invest in rare earth metals
Unlike precious metals such as silver and gold, or non-precious metal commodities such as nickel, copper, and tin, rare earth metals are not traded on an exchange. Instead, they are purchased in private markets. Current prices are published regularly on various websites, for example, on mineralprices.
If you want to invest in rare earth metals, then the two principal methods are to invest directly in companies that mine and process them or alternatively, invest in Exchange-Traded Funds that include a mix of supplier, mining and manufacturing stocks.
Ming process: Rare earth elements
While rare earth metals are not at all rare and are widely distributed across the planet, mining and refining them is complex and expensive. If you want to learn more about the rare earth elements mining process, please follow the link.
