Rare Earth Elements: A New Horizon for Investors

Rare earth elements (REEs) have emerged as essential ingredients for digital and low carbon technologies, thanks to their wide variety of ore minerals with magnetic, luminescent and catalytic properties.

Production of REEs is highly geographically concentrated, with three countries accounting for more than half of global output. China implemented export restrictions that caused prices to skyrocket and led to international outrage over this matter.

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Market Overview

Demand in Asia Pacific rare earth elements market is expanding quickly due to increasing adoption of electric vehicles that utilize neodymium and praseodymium magnets. Automotive industries also rely heavily on rare earth metals as catalytic converters and fuel cells are manufactured for gas vehicles to reduce harmful emissions, as well as polishing television glass to smoothen surface and reduce weight, manufacturing ceramics, fluorescent lighting fixtures, digital memory devices, batteries.

The United States is taking steps to become less dependent on China for rare earth minerals. The Department of Energy recently awarded two University of North Dakota researchers an $8 million grant to study how to extract rare earth elements from coal waste, particularly lignite coal waste, in order to diversify markets and create domestic sources of critical materials required for manufacturing, supply chain stability, and national defense purposes.

Rare earth elements have an intensely fragmented competitive environment and many major companies compete to gain market share. Some examples of these companies are Shin-Etsu Chemical Co Ltd, China Minmetals Rare Earth Co Ltd, Molycorp Inc, Lynas Corporation Ltd and Iluka Resources Ltd - to gain an edge they invest in mergers and acquisitions as well as expanding production capacity of these metals. Due to coronavirus pandemic in China raw material supply could also become disrupted and production may even slow.

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Supply & Demand

Rare Earth Elements (REE) are 17 silvery-white soft heavy metals in the Lanthanide series. Known by their chemical symbol "RE", they occur only rarely in nature and usually in trace amounts combined with other elements - making mining them and processing into usable forms costly and challenging.

As demand for green technologies increases, so too must supply chains be reliable and stable. But an imbalance in global trade of Rare Earth Elements (REEs) threatens their availability and has resulted in scarcity and skyrocketing prices - and especially so for REE production in China which currently accounts for 60% of total production and 85% of processing capacity compared with around 14% worldwide production and capacity in the US.

REEs are found relatively abundantly throughout Earth's crust (cerium being one of them at 68 parts per million and more abundant than copper), yet are often present at lower concentrations and difficult to distinguish from other elements. Scientists were unable to develop economically feasible ways of extracting REEs for decades, with bold plans like deep-sea mining or extracting REEs from acidic wastewater draining from abandoned mines remaining just science fiction. Chinese companies began purchasing controlling shares of rare earth operations worldwide and then moving production within China but under their financial control. Success of this strategy depends on consumers and manufacturers being willing to pay premiums for materials produced under socially responsible conditions.

Technology

Rare earth elements helped revolutionize global communications technologies in the 1990s. Bell Labs developed an erbium-doped fiber amplifier that improved long-distance phone calls; smartphones used lanthanum to reduce camera distortion and neodymium to make speakers louder; while energy sector applications included hybrid cars' drivetrains and power steering using neodymium-iron-boron magnets as well as wind turbines and China's recently-developed magnetically levitated train line which allows trains to run without using electricity!

Thulium and yttrium play an integral part in making LED lights brighter, while Terbium plays a significant role in solid-state hard drives that have quickly replaced conventional hard disks in laptop computers due to being faster and more reliable. Finally, Yttrium serves as a key alloying agent in advanced materials, such as TV screen phosphors as well as nickel metal hydride batteries.

These technologies may appear futuristic, but their potential to accelerate the clean energy transition has real-world relevance. Governments and companies alike have responded to rare earths demand with innovative solutions like streamlining environmental reviews to extracting elements from sea floors or even collecting them off the Moon - though rare earth supply chains remain vulnerable to volatility while Africa's full potential remains mostly untapped due to low exploration budgets compared with Canada, Australia or Latin America.

Economic Impact

Japan's growing appetite for electric vehicles combined with government efforts to reduce carbon footprints has contributed to increased sales of rare earth elements, especially neodymium and dysprosium, used as wind turbine magnets. Furthermore, moving away from internal combustion engines towards more eco-friendly electric ones will increase demand for cerium and yttrium used for lithium batteries.

One major challenge facing rare earth production is that it requires significant initial capital investment that may take five years to bring into operation. Mining operations can be costly and subject to environmental regulations; their process requires topographical mapping as well as major investments for water and energy supply infrastructure investments.

Sustainable and ethical production of rare earths relies heavily on consumers and manufacturers voluntarily paying more for materials produced ethically. To achieve this goal, mechanisms within and beyond governments must ensure that production practices adhere to global standards. Coronavirus pandemic has led to another unintended consequence: truck drivers have refused to deliver to areas identified or suspected as harboring the virus, interrupting supply chains for raw materials. An effective solution to this issue lies in moving rare earth elements production closer to market areas; doing so will result in both cost savings and increased flexibility when designing products.