The Global Demand for Rare Earth Elements: What It Means for Investors

Rare earth elements can be found anywhere--in your phone, car, night-vision goggles and F-35 fighter jets! Their use in green energy products and consumer electronics with reduced environmental impacts and high efficiency demands them as essential ingredients.

However, the market is highly concentrated with China dominating global production and 85% of processing capacity - leaving investors vulnerable to supply disruptions.

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1. Global demand for REEs is expected to grow

Rare earth elements (REEs) are essential components in modern technologies, from magnets powering electric cars to metals used in high-speed trains. Unfortunately, however, REEs have traditionally been in limited supply. China has held onto most REE production for decades, which means most mined REEs must first be sent there for processing before being used in technology products - putting our global economy at risk during times of tension between nations such as the U.S and China.

Mining rare earth elements (REEs) is an expensive endeavor and the mineral can often be sold in mixes of varying purity (for instance 99% neodymium metal). When demand increases for certain REEs, prices can also go up accordingly; additionally mining and refining have significant environmental ramifications, so investors must always take these aspects into consideration when investing in rare earth miners.

REEs are essential components in many industries, from electronics (computers, televisions and smartphones) to renewable energy technology such as wind turbines and solar panels, national defense and more. Demand for REEs is expected to surge exponentially as these metals continue to be utilized to develop innovative new technologies.

Magnets are one of the primary uses for REEs, accounting for around 80% of global demand. To produce permanent magnets using REEs combined with iron to form Neodymium Ferrite Bragg (NdFeB) magnetic materials. These magnets can then be found in products such as hybrid electric vehicles, wind turbines and computer hard disk drives.

As demand for green energy and electronic devices continues to increase, REEs should become even more essential in Asia Pacific. Furthermore, COVID-19's pandemic highlighted supply chain issues in China which led to increased REE demand in this region.

Key to reducing our dependence on Chinese REEs is developing more reliable domestic sources for these metals, requiring investment in domestic mining and refining operations as well as research and development activities to discover viable alternatives to rare earth magnets.

2. REEs are critical to many industries

Rare earth metals (REEs) play an essential role in many industries, from military equipment and hybrid cars to high-tech components for communications networks, MRI machines and consumer durables like speakers and microphones. So important are REEs for modern economies that they have been classified as critical assets and should be protected against supply shocks and disruptions.

As the global population adopts new technologies and continues to develop and adopt REEs, their demand will likely surge significantly over time. Renewable energy sources are one of the primary drivers of this surge; using them for electric vehicle production or wind turbine production requires REEs in ample supply - their use even accounts for up to 27% of total global REE production!

Current US REE supply relies heavily on China for supply. Over 80% of its usable REOs and metals come from import, and no US facility has the ability to refine REE (USGS 2021).

China holds the world's largest REE reserves and houses approximately 80% of REE-mining facilities worldwide (USGS 2010-2021), meaning the United States must import nearly all of its REEs, even those produced domestically, from China. Despite these challenges, many companies are moving operations into China to gain better access to reliable REE supplies at more reasonable costs.

Note that, while REE demand and supply currently appear balanced, individual REEs have projected growth rates that outstrip overall REE demand; it is therefore expected that there will come a point when demand for certain REEs such as neodymium and dysprosium surpass global supply.

Researchers are taking steps to address this potential threat, devising effective recycling and refining processes for rare earth elements (REEs). Unfortunately, this process will take both time and money as REEs are typically found together in their parent ores and must be separated using complex chemical processes. Until such technologies can be created in America, China will remain our go-to supplier both for REE mining and refining as well as REE exports.

3. REEs are difficult to replace

REEs are essential components in many modern industries, from electronics and optoelectronic devices to high-power magnets used in electric power generation and rechargeable batteries. REEs play an increasingly vital role in creating technologies aimed at reducing carbon emissions and improving energy efficiency; because replacing REEs with alternative materials could cause production delays or damage their competitive advantage for companies using them in their products.

REEs were once believed to be very rare, but with the discovery of large REE deposits in China and elsewhere has resulted in their widespread usage. Contrary to popular belief, however, REEs are actually quite abundant throughout Earth's crust but can often only be found dispersed among ores with low concentrations requiring costly and energy intensive mining operations to extract (USGS 2022).

Lanthanum, cerium, praseodymium and neodymium comprise over 80% of world rare earth elements reserves while heavier rare earth elements (HREEs) such as europium, gadolinium terbium dysprosium holmium erbium and ytterbium can be harder to find commercially viable deposits of. Mining and refining REEs is complex due to multiple elements often occurring together within one deposit requiring special efforts for separation.

As society embraces more sustainable energy sources, REE-based magnets may only increase in demand. Governments and manufacturers should work to ensure these materials remain readily available while also addressing any supply chain security concerns that might arise.

Western economies must join together in improving the entire REE supply chain, not simply China's domestic mining and refining processes. This effort should include efforts to foster more geopolitically stable international trade and sustainable mining practices as well as efforts to find alternatives to REEs whenever possible while keeping surplus levels below zero. To achieve this goal, a balanced approach must be taken, which considers the relative magnitudes of REE use across different technological sectors. Switching from fluorescent lamps to LEDs may require the use of additional polishing agents that increase environmental risks (Stutt 2020). The same holds true for many other REE-based technologies like permanent magnets.

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4. REEs are valuable

Transitioning away from traditional energy sources towards greener alternatives has led to an explosion of demand for rare earth elements (REEs). From vibrating cell phones and charging electric vehicles (EVs) to vibrating phones that vibrate when using vibration detection technology, these high-tech devices need powerful permanent magnets made with REEs - unfortunately the supply chain for such essential elements is dominated by China, creating a serious crisis in supply chains for REEs.

China's dominance over REEs has raised concern that their political actions may lead to price spikes and shortages on the global market, prompting governments and companies to stockpile REEs as insurance against future shortages.

However, these stockpiles will only remain effective for a limited period of time due to rare earths not being traded as freely as precious and nonferrous metals are, often consisting of mixtures with differing levels of purity such as 99% neodymium alloy. If prices suddenly increase substantially manufacturers may need to change suppliers which could cause significant disruptions in production as well as higher costs for consumers.

To avoid sudden price hikes, countries must devise long-term strategies for the security of REE supplies. This could involve investing in exploration and development activities for REE deposits as well as looking for partnerships with foreign suppliers that are politically and economically stable to reduce dependence on one nation and thus risk.

REEs are limited in supply and can be costly to extract, making them highly sought-after resources for manufacturers. Due to this factor, many prefer purchasing their raw materials from trusted and reputable suppliers; however, taking this route requires significant financial capital for sustained risk-taking.

As demand for REEs continues to surge, governments and companies must work together to establish long-term supply chains for these essential resources. Not only will this ensure businesses can continue operating without interruption but it will also allow them to innovate new technologies to advance society as a whole.