Rare earth metals play a critical role in many modern technologies. From televisions and rechargeable batteries to catalytic converters and military equipment, rare earths are an integral component of everyday life.
Rare earths refers to 17 elements with atomic numbers from 57 through 71 plus scandium and yttrium that feature fluorescent, magnetic and conductive properties as well as various industrial applications.
Rare earth elements might not make headlines on Wall Street, but their importance in modern technologies cannot be overstated. From computer hard drives and loudspeakers to flat screen monitors utilizing rare earth magnets or phosphors found within flat screens - rare earths make hybrid cars possible as well as missiles!
Rare earths (REEs) often get the reputation for being scarce, yet these metals are actually plentiful and widely distributed throughout nature. Unfortunately, they're not easy to extract due to a mining process that can be hazardous to both people and the environment; moreover, REEs are concentrated in just a few countries worldwide, which poses both political and supply chain risks.
China has emerged as the dominant supplier of REEs (otherwise known as lanthanides). China now holds 85-70% of global refining capacity and its dominance is becoming ever more concerning as demand for REEs from new technologies such as electric vehicles is predicted to surge exponentially.
REEs are comprised of several metals and compounds such as neodymium (Nd), praseodymium (Pr), samarium (Sm), promethium (Pm), gadolinium (Gd), erbium (Er), thulium (Tu) and ytterbium (Yb). Also commonly utilized REEs include cerium (Ce), lutetium (Lu), yttrium (Yt), scandium (Sc) and ytterbium oxide (YO).
REEs are expected to experience high demand from emerging technologies, yet have long been used in other sectors including televisions and rechargeable batteries. Other industries using REEs include aluminum production, catalytic converters and wind turbines.
While rare earth elements have an exciting future ahead, investors should also remember their long history. Rechargeable batteries, televisions and catalytic converters all contain rare earth elements; many companies that currently manufacture these technologies continue using them today and may in the future too. Therefore, diversifying your portfolio with companies producing different technologies is key in mitigating risk associated with new tech markets while giving exposure to some of the most promising emerging opportunities within REE space.
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Rare earth elements such as dysprosium, neodymium, praseodymium and terbium are vitally important to modern technology, yet difficult and costly to mine. Due to this difficulty and cost factor, their prices can fluctuate frequently; hence their limited use. This gives investors an opportunity to profit by buying low and selling high.
Investment in rare earth metals should be undertaken via mining companies that produce them. Such mining corporations extract and process minerals from the ground before refining them for sale to manufacturers. Common choices among mining corporations that produce rare earths include large, established corporations with proven exploration and mining techniques that consistently yield market shares, consistent output levels, and steady cash flow.
However, it's important to keep in mind that rare earth elements don't correlate directly to traditional investments like stocks and bonds, so their prices could significantly under or overperform them. Furthermore, shares in mining companies tend to carry greater risk than their counterparts on other markets, so their prices can change even without an overall market shift in place.
Many investors find it easier to invest in rare earth metals through mutual funds or exchange-traded funds (ETFs), which often provide exposure to mining companies that extract rare earths as part of their total operations. Robo advisor ESG portfolios offered by Betterment and Wealthfront may also include exposure to such companies.
There are also new technologies being developed to aid with the extraction and processing of rare earths. Scientists are currently devising techniques to extract rare earths from seawater or natural sources, thus decreasing mining needs. Furthermore, efforts are underway to establish domestic refining capacity for rare earth minerals in order to reduce foreign suppliers altogether.
Due to these reasons, it's wise to invest in rare earth elements as part of an overall portfolio diversification strategy. A general guideline suggests not allocating more than 10% of assets towards any one sector or commodity.
Rare earth metals may not be among the hottest topics on Wall Street, but they may prove more attractive than many investors realize. One reason is their critical role in many new technologies and limited supply - two conditions which create huge returns when demand and supply are in balance.
But this doesn't mean investing in rare earths is risk-free; their markets can be highly illiquid and opaque, creating wild price swings and an uncomfortable level of volatility for many investors. Furthermore, production is controlled mainly by large mining companies which control most of the global supply and leave small retail investors vulnerable to supply and demand disruptions.
Demand for rare earths is projected to increase substantially due to hybrid and electric vehicle sales, renewable energy technologies, and other green initiatives in the coming years. That demand should lead to higher prices, creating an attractive investment opportunity for investors with long-term plans who accept some degree of risk.
Investors looking to capitalize on rare earths can invest by purchasing mutual or exchange-traded funds that specialize in this sector, which typically hold stocks from various mining and processing companies from America, China, and Australia. Another strategy would be purchasing physical oxides through metal traders as this provides a cost-effective means of diversifying your portfolio while expanding exposure in an emerging market.
For investors who prefer equity investments, look for established companies with established exploration and mining techniques, an appropriate rare earth market share, steady output and cash flow. You could also consider smaller players looking to revolutionize how rare earths are extracted and processed; Aclara Resources Inc has designed an extraction method which utilizes less rare earth than traditional methods which reduces environmental and social impacts.
If you prefer direct investing, look for sellers with reliable storage and adequate insurance for these highly valuable materials. Swiss Gold Safe can arrange segregated storage outside the banking system so investors always have access to their rare earths assets.
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Rare earths and precious metals offer investors and traders numerous ways to make money. Mining companies, exchange-traded funds (ETFs), options and futures contracts all present opportunities to profit.
Before investing in rare earth minerals, it's essential to understand their unique properties. Neodymium, for instance, is often used in computers and loudspeakers as powerful magnets while cerium plays an integral part in catalytic converter production as well as petroleum refining processes. Meanwhile, scandium, yttrium and lanthanum play key roles in producing green technology products like hybrid cars, wind turbines and solar panels - essential in both private and military sectors, thus driving demand for rare earths into the future.
As opposed to gold miners and energy companies, rare earths mining firms may not be as well-known. One reason may be due to how rare earths don't trade on a central marketplace but instead are supplied through various mining firms that may or may not disclose all relevant details of operations or factors that impact prices or profits directly. Small retail investors are frequently unaware of changes that affect pricing or profits at all due to this lack of communication from mining operations themselves or from third-party mining firms that control them.
Investors can generate profits by purchasing shares of rare earth metals-related mining companies, such as Freeport-McMoRan (FCX) and MP Materials' Mountain Pass Mine - the only US-based rare earth mine - operated by MP Materials. Furthermore, there are several exchange-traded funds which offer exposure to such companies, such as VanEck Vectors Rare Earth/Strategic Metals ETF (REMX).
Investors can acquire physical rare earths through commodity brokers that specialize in commodity trading; however, due to no central marketplace being available for this commodity. Instead, investors would do better investing in companies which explore for, extract and process rare earths such as Neo Performance Materials (TSX: NEO), which stands to benefit from growing demand for these essential industrial minerals.
A Comprehensive Guide to Rare Earth Metals Investing