Rare Earth Stocks
Rare earth metals are essential for many of the technological advancements we rely on today. Gadgets from cell phones to laptops require them, as do hybrid vehicles and solar panels. Your television couldn’t function without rare earth metals, nor could any of your batteries.
Rare earths are a group of 17 elements that are actually not all that rare; they’re found in fairly high quantities in the crust of the Earth. But since the reserves are spread out and concentrated in very small groups, they’re not so easy to acquire.
They are, however, in high demand — demand that is growing even greater as both high-tech products and renewable energy sources become more advanced and more popular.
And the world’s supply is highly concentrated in one area: China.
China controls somewhere around 80% of the world’s production of rare earth metals. While that’s down from recent years, there is still cause for concern.
That’s because almost 100% of “high-value” rare earth metals still go through China. Nearly all “high-value” rare earths have to be sent to China for value adding and refining.
The U.S. has its own supply of rare earth metals — about 12% of global reserves.
The problem is, mining and production of rare earth metals can be a highly pollutive process. Until very recently, China was more concerned about extracting and processing the metals than these environmental effects, and this is how it was able to grow into almost the sole supplier of rare earths.
But it was also this pollution China cited when it decided to reduce its export quota back in 2010. That year, Beijing’s drastic pullback on exports sent prices sky high.
In 2009, China’s export quota for rare earth metals was around 50,000 tons. But in August 2010, the government cracked down, reducing quotas to 30,258. And by 2015, the quota was removed entirely.
Over the last 10-15 years, world consumption and demand has increased by 8-12% per year.
By 2020, demand is expected to increase by as much as 50%.
Japan was the first to take the hit from these reduced rare earth supplies. China and Japan have always had a strenuous relationship, and land disputes were frequently triggers for trade issues. In 2010, the trigger for rare earth export reduction was a quarrel between a Chinese fishing trawler and the Japanese Coast Guard over a group of islands.
But then supplies were limited for the U.S. and the rest of the Western world, too.
The thing is, pollution was only one of the reasons China began to cut its rare earth supply. China was already the world’s largest rare earth consumer, but an increase in domestic demand caused the nation to reconsider where its supply was going.
Naturally, China decided to keep more supply at home.
Exploring Options Outside China
The World Trade Organization began investigating China’s restrictions and diminishing quotas in 2012. In March of 2014, the WTO found that China had broken WTO rules. China cited environmental concerns for the restrictions, but WTO was not impressed with this line of defense.
And it’s left nations around the world with two options: reduce dependence on rare earths or start mining their own.
The U.S. recently decided to take matters into its own hands. The Department of Energy provided Ames Laboratory with $120 million to create a Critical Materials Institute (CMI) lab, which would have three tasks aimed at moving the United States away from Chinese rare earth dependence, as outlined by the Department of Energy:
Diversifying global supply chains to mitigate supply risk
Developing material and technology substitutes
Promoting recycling, reuse, and more efficient use to significantly lower global demand for critical materials
Asian nations, particularly Japan — the world’s biggest rare earth importer — are also exploring other options. A number of Japanese companies are working with India Rare Earths to build a processing plant in Kazakhstan.
Kazakhstan is the world’s largest producer of uranium, and amid the rare earth crisis, this has drawn interest. Rare earths can often be found in the waste byproducts of uranium mining — a fact that will likely make uranium mines an even more attractive location for rare earth producers in the years to come.
But the pollution of rare earth processing is still posing a problem. Many countries are reluctant to be the location for the processing plants, particularly amid the growing concerns of climate change and the radioactive contents of the waste.
Shortages are going to be a growing concern until the extraction and processing techniques can be cleaned up or until an alternative resource is found.
Where to Look
But high demand and short supply makes for lucrative market conditions — if you know where to look.
A number of rare earth mining and production companies operating outside of China are going to experience demand growth, particularly as China cuts its exports even more in the coming years.