How to profit from Rare Earth Metals
There's not one person in the civilised world who has not come into contact with these Rare Earth 'dragon' metals - yet most people don't realise their existence or for that matter recognise the daily importance of these essential but scarce commodities and therein lies the opportunity.
What are Rare Earth elements?
The Rare Earth Metals, or Rare Earth elements, as they are also known, are a collection of 17 elements in the periodic table. The term 'Rare Earths' comes from the fact that the minerals that contain these unusual elements are simply "rare".
A vital component in modern day electrical components and also found in so called "environmentally friendly products - these "Rare Earth" metals are extremely valuable and since the methods used and the locations of the raw materials are both expensive and hard to access and more importantly very rare, all adds up to a modern day Gold rush.
In the 1980s, for example, the Rare Earths sector was worth less than $100m - nobody had mobile phones or tablet PC's and as a result there was not an large manufacturing demand. The only country who did see potential and indeed had its own supply was China - now one of, if not the largest exporters of modern technology (all makes sense now doesn't it?).
China has a proven record of being one step ahead in almost all sectors and in the resources arena this is not an exception. Hence the name "Dragon Metals".
China has perhaps one of the largest stocks and to some degree can influence the global market by varying actions (as can other nations with many assets - eg. Gold).
Having such a large stock (not exhaustible) China supplied approximately 96% of the Global demand. This supply and demand curve has remained unchecked and for many there was no concern about this seemingly unchecked monopoly.
However, this all changed in 2010 when the prices soared.
"If 12 months ago you were offered an opportunity to invest into an emerging market which was steady but where your broker was claiming return of 1000% - you would have stopped working with them."
Why do rare earths matter?
Conservatively, the global market for Rare Earths has grown at an annual rate of approximately 8%-11% over the last decade. - source "the World Trade Organisation". But with the continued increase demand due to the new wave of consumer electronics, the price has dramatically increased and rare Earths have now caught the attention of the Investor.
Why has the price now started to increase?
For the last five years or so, China has been implementing quotas, cutting exports of Rare Earths by 5%-10% each year. This has obviously driven the market - in essence " pushing up prices". In 2009 the Rare Earth share index which shows the holdings of 12 of the Mining companies involved in Rare Earths showed an increase greater than 600%.
Opportunities
With any market, you have to consider risk versus reward.
Now that governments around the world have identified that there is a problem with supply and potential monopolies, all countries are now trying to implement trading strategies with allowances. Australia and Japan have applied for licences to extract Rare Earth Metals. But since the extraction process is laborious and expensive, not to mention time consuming, it could be some time before we see new supplies in the market place. The implementation of any trade agreements coupled with new sources could take up to a decade to impact upon this market which if consumer hunger for Touch Screen Electronics, slim televisions and a host of other consumer products continues to increase (anyone would acknowledge that this demand will increase). However, the end result for at least the next 5 years for this Commodity is that Investors will be queuing to become involved in what can only be compared to a Gold Rush.
Rare Earth Metals and Uses
Limited Supply
Despite their name, rare earth metals aren't that rare. With the exception of radioactive promethium, the rare earth metals are relatively plentiful in the Earth's crust. However because of their geochemical properties they are rarely found in concentrated and economically exploitable forms. When they are mined rare earth metals are mined as various oxides and then broken down into their component parts. Rare earths are vital to new technologies such as iphones, flat screen televisions and green energy technology.
The problem with supply of rare earth metals is that demand has skyrocketed in the last decade from 40,000 tons to 120,000 tons. China now only exports about 30,000 tons a year, only one fourth of the demand the world needs.
The independent predicts that in order to build more green technologies, the world will need 200,000 tonnes of rare earth metals by 2014. Yet china is now threatening to stop all exports of rare earth metals by the end of 2012.
Without China's exports, the western world will quickly run out of rare earth metals. That means no more "green" wind turbines, no more iphones, no fibre optic cables, no x-ray machines, no car stereos, no high tech missile guidance systems, and no electric motors.
China is not the only geographic region where rare earth metals are found, but constructing mines to pull these elements out of the ground takes many years. Some mines are under construction right now in other countries that could help fill the demand for rare earth metals, but making them operational is, in many cases, 5 to 10 years away. Meanwhile, China could cut off its supply leaving a 3-7 year gap in which these rare earth metals will be in disastrously short supply.
It is almost certain that the prices for rare earth metals will skyrocket over the next 2-5 years. This creates a huge investment opportunity for people willing to diversify their investments and bet their money on rising prices of these metals.
For more in-depth information, please contact Select Global or download our complimentary research analysis report.
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