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Rare earth elements are that cluster of bizarre items on the Periodic Table that your Chemistry teacher blew right past, asserting that you would never need to know about the. Ironically, those oddities have become vital to our modern way of life. As if that’s not enough, the rare earth elements are the epitome of sound investments based on solid supply and demand principles. So I want to share market tips related to the industry to inform your investments accordingly.
Rare Earth Elements Are Hiding In Plain Sight
On the one hand, modern electronics, weapons of war, windmills, electric cars, as well as advanced television technology and cell phones would all be impossible without them. Telecommunications, computer technology, petrochemicals, optics and the like are toast without rare earth elements. If you find that you like your digital camera, make use of fiber optic lines, or have ever been the beneficiary of medical imaging devices, you can thank the rare earth metals.
While some applications call for tiny amounts of these goodies, still others require massive amounts. Windmills, for instance, which are at the forefront of green & clean energy, consume huge amounts of rare earths. They can put away hundreds of pounds like it’s nobody’s business. A simple car battery in the Toyota Prius can gobble up over 30 pounds of lanthanum. The hybrid car industry alone can take on epic amounts of rare earths like it’s no big deal. At some point we may have to question where to funnel metered resources. Indeed, we’ve already seen the unintended consequences of feeding our corn to fuel factories to make ethanol rather than feeding it to us (or the animals that feed us). The push for clean car locomotion via rare earths may cave in to other options such as LNG. Only time will tell.
Rare Earth Elements And The Insatiable Demand
A critical piece of the puzzle is in realizing that rare earths are not quickly substituted out. These unique elements have electron landscapes and behavior that produce magnetic and other properties that simply are not found elsewhere. The level of performance and technological capability that rests on the shoulders of rare earths is not readily duplicated outside of that environment. If you’re fond of satellite systems, GPS, cell phones, iPods, laptops, DVD players and even a cordless drill, you have a new-found respect for the irreplaceable rare earth elements.
With the rare earth elements cornering the market on their unique properties and applications, the inability to use alternatives sends demand parabolic. I struggle to think of a better example of a constrained supply of ingredients that are in rising demand. Not only are more and more people in need of these rare earth elements for existing uses, but it’s also the case that more and more applications for them are being discovered all the time. They are the veritable poster child of what happens when lots of people compete for a little bit of goodies.
As for new and innovative uses, just consider these incontrovertible facts. The massive need for hybrid car technology didn’t even exist a short time ago. The windmill revolution was little more than a novelty on the Dutch landscape until relatively recently. What’s next? The world used up over 100,000 tons of rare earths in 2010. By 2015 the projection is to be at a quarter-million required tons. The expectation for electric and hybrid car use is so large that, just a decade later, the automotive could be using more than a million tons alone!
Rare Earth Elements And The China Monopoly
Once upon a time, China actually imported rare earths from the United States. However, China was eventually producing rare earths very cheaply as a by-product of one of its very large base metal mines. It essentially dumped rare earths on the market for peanuts. It was able to dump these products on the market at low cost, which kept prices so low it was difficult for competitors to profitably bring rare earth elements to market. The primary American mine, and others around the globe, basically had to shut down. If you can’t produce profitably, the doors close. And tight mining regulations and antagonistic postures in the United States only make matters worse when wretched regulations become so onerous.
Long story short, China has taken over and since reversed course. Over time, various factors have led to China decreasing exports. These include their own increased consumption, as well as a likely power display towards nations it wanted to punish or put on notice. It’s gone from exporting three-fourths of its rare earth to exporting less than 25% and dropping. To put demand and use in perspective, it actually produces more than twice what it did a decade ago, so the retained rare earths demonstrate how magnificently China’s economy is growing with rare earths. On top of that, in some cases China may even soon end up importing certain rare earth elements, such as those of the “heavy” rare earth variety, that it does produce enough of on its own.
To be clear, let’s sharpen our understanding of two points. Rare earth elements are completely rare. However, there are two factors that make it seem that way for all intents and purposes. On the one hand, China now controls an estimated 95%-99% of all these metals. “Controls” is the operative word, as not all of the goodies China has dominion over are on the Chinese mainland. Beyond control, the other issue is that it’s tough to locate, and develop, economically feasible rare earth deposits. It’s one thing to have a large deposit. It’s another to have one that is sufficiently concentrated, and readily processed to result in useable rare earth oxides.
Rare Earth Elements And America With Its Pants At Its Ankles
To say that the American supply chain of rare earths has been mismanaged is an understatement. The U.S. Department of Commerce is now warning of a possible crisis situation in the 2012 to 2014 range. An Alaskan Senator exclaimed that our foreign reliance on rare earths will mimic the dependence on foreign oil. The key difference is that our dependence on foreign oil is somewhat elective. Our dependence on rare earth offers few options. And it seems to be only a matter of time before China all but terminates rare earth exports entirely.
The only upshot is that the supply crunch, and insatiable demand, has driven price by a multiple of 6 or 7 in less than a year. This type of price hike is sufficient to get efforts going around the world to locate and produce rare earth elements. Much of the technology and talent, however, has moved overseas. Realistically, that’s where the greatest opportunities reside. Otherwise, the timeline for production is too protracted.
To illustrate, the U.S. Department of Energy state it could take seven to ten years to get permits to begin a new rare earth elements mining operation in America. There are literally dozens of respectable mining venues across the world that can issue permits faster. The United States, amazingly, will largely be left behind. Accordingly, the best investment opportunities are elsewhere. The demand isn’t going away, so the money is headed towards the foreign companies that bring the rare earth elements to market the soonest.
