Rare earth metals, also known as Rare Earth Elements (REEs) are a special class of remarkably important metals that have become essential to the way we live. One hundred years ago, we really had no use for these rare earth metals. Today, we would have a hard time manufacturing many of life’s luxuries and conveniences without them.
Rare Earth Metals In Not-So-Rare Demand
Rare earth metals are used in everything from magnets to mobile phones as well as hybrid car batteries and laptops. Even the military uses them for electronics, batteries, lasers, optics, missiles, and surveillance equipment. So, if you hear Europium, Neodymium, Niobium, and Cerium tossed around at a cocktail party and are inclined to think it’s highly irrelevant to your life, please reconsider. They may even be critical to your investment portfolio, even as they have radically made some nice additions to mine.
The investment opportunity in rare earth metals stems from the fact that there is an ever-increasing demand of materials that are in relatively short supply. And, the demand should only continue to rise. China and India have a couple of billion people who are keenly interested in modernizing their way of life, which places further demand on these resources.
Rare Earth Metals And The China Factor
To make matters worse, speaking of China, China happens to control an estimated 95-99% of the known world’s supply of REEs. And, in their effort to become a world superpower, China is reducing REE exports, taxing them notably when they do leave the country, and even stopping exports in some instances. They have their own ambitious plans to establish a wind energy program and also lead the way in electric cars. A single windmill can consume hundreds of pounds of rare earth metals. And hybrid and electric car batteries are but a distant memory with them.
The fact that supply from China is unpredictable at best, coupled with our apparent need for these elements to support our way of life, companies are seeking to fill demand in a number of ways, in various parts of the world. There are companies with proven deposits of rare earth elements, though it takes some time to get to production. There are companies that are re-visiting old mining sites from times past when mining these metals was either unnecessary or banned for one reason or another. And, of course, there are companies with “rare earth” in the name, but little more than that.
On top of the fact that you have to carefully choose your rare earth plays, there is also short term forth that can happen when the sector, as a whole, gets injected with excitement and gets a bit ahead of itself. One such occurrence was in Spring/Summer of 2009. A talking head spoke positively of rare earth elements and the underlying stocks saw some rapid juice. Things cooled off a bit until Summer/Fall of 2010. With China getting into a squabble with Japan, and initially talking about drastically cutting exports to the West, share prices again jumping like crickets trying to escape a bullfrog. As always, the sprinters took some time to catch their breath. The point is to not get sucked into unjustifiable price jumps that outpace company developments to support them. You can expect to see fizzle follow froth, but the long-term outlook is fortune.
Rare Earth Metals And The High-Price Payoff
The long-term prospects for investing in quality companies mining rare earth metals are very promising. Just remember, there are more and more uses for these metals being discovered. On top of that, note that China long controlled the REE market by flooding the international scene with cheap REEs because they were produced as a mere by-product of a massive iron mine. This could successfully keep other companies out of the game because they could not pull the stuff out of the ground cheap enough.
However, China is estimated to now consume two-thirds of what they produce. So they are no longer as able to dump REEs on the scene and keep competition on the sidelines. Rising prices pave the way for companies to sniff out REE deposits and bring them to market. Wisely-invested early shareholders can stand to see life-changing returns few investors will ever experience in their portfolio.