What You Need to Know: Rare Earth Metals
By Josh Lipton Jan 13, 2011 11:10 am
Investors have been rushing into rare earth metals as demand surges and trade tensions escalate -- but what exactly are they, and why do they matter?
New terms and ideas often pop up in the media-sphere, yet frequently readers are spoken to as if they just "know" what these are and why they're important. So Minyanville's "What You Need to Know" series will bring you important context and background to new memes circulating in the business media as they arise.
A lot of investors might have been unfamiliar with what are known as rare earth elements but, after all the recent headline-grabbing trade tensions surrounding these ultra-precious metals, their popularity has surged.
Rare earth elements (or REEs as they are sometimes referred to) are 17 specialized elements that basically make up the bottom two rows of the Periodic Table of Elements. These metallic elements, as Minyanville reported in a recent article, are used in a variety of industrial and commercial applications.
For instance, Neodymium is used in cell phones and sound systems; Dysprosium helps make electronic components smaller and faster; Cerium, the most abundantly prevalent rare earth element, is found in catalytic converters.
Jeb Handwerger, a professor at Minyanville, detailed just how vital these elements are to so many of our industrial giants in the latest cutting-edge technologies: Think Apple (AAPL) and its iPhones and iPads; GE (GE) and its wind turbines; and GM (GM) and its hybrid cars.
But these elements aren’t only important for geeky gadgets and Mother Earth-friendly rides. They’re also critical to the manufacture of many defense items, including aircraft controls, missile technology and navigation systems.
One important point about the rare earths: they actually aren’t all that rare, say analysts. In fact, there are REEs all over the world. But it’s difficult to find high enough concentrations of these metals together in one location to make an REE deposit economical.
Rare earths started attracting a lot of press attention in September. That’s when Japanese importers accused the Chinese, who supply around 95% of the world’s rare earths, of suspending shipments. Tensions have only increased: China recently cut its quotas on first-half exports of rare earth metals around 35%, a move following an even deeper cut in 2010.
Beijing’s decision, as the Wall Street Journal reported, has sparked criticism that China is taking advantage of its position to raise prices.
"We are very concerned about China's export restraints on rare-earth materials," a spokeswoman from the US Trade Representative's office said. "We have raised our concerns with China and we are continuing to work closely on the issue."
In response, the Chinese have maintained that it’s legitimate for China to restrict exports of rare earth metals and that such a policy doesn't violate World Trade Organization rules. Beijing has maintained that the export cuts are in line with sustainable development, citing worries about the environmental impact of mining rare earths.
(In what appeared like an attempt to reassure users of rare earths, the Chinese commerce industry then reportedly issued a statement that it had not, in fact, fully decided what the total export quotas would be in 2011).
Regardless, tight export quotas have caused prices of rare earths to soar. Rare earth miners like Molycorp (MCP) and Lynas (LYSDY) have enjoyed remarkable triple-digit moves in the last few months. The Market Vectors Rare Earth/Strategic Metals ETF (REMX), which aims to track the performance of publicly traded companies that generate more than 50% of their revenue from these sought-after metals, is up 15% in just the past four weeks.
However, Handwerger, who’s also the editor of Gold Stock Trades, sounds a word of caution. He emphasizes that investing in rare earths is completely different than investing in precious metals such as gold or silver. Rare earths become quite costly during the separation process and very few projects are economically viable, he says.
“The mania phase is upon us, and investors get caught up with all the speculative rare earths promising a dream,” he notes, adding, “Long-term investors might want to wait for a secondary buy point.”
Too Long Didn't Read? The Key Takeaways:
A lot of investors might have been unfamiliar with what are known as rare earth elements but, after all the recent headline-grabbing trade tensions surrounding these ultra-precious metals, their popularity has surged.
Rare earth elements (or REEs as they are sometimes referred to) are 17 specialized elements that basically make up the bottom two rows of the Periodic Table of Elements. These metallic elements, as Minyanville reported in a recent article, are used in a variety of industrial and commercial applications.
For instance, Neodymium is used in cell phones and sound systems; Dysprosium helps make electronic components smaller and faster; Cerium, the most abundantly prevalent rare earth element, is found in catalytic converters.
Jeb Handwerger, a professor at Minyanville, detailed just how vital these elements are to so many of our industrial giants in the latest cutting-edge technologies: Think Apple (AAPL) and its iPhones and iPads; GE (GE) and its wind turbines; and GM (GM) and its hybrid cars.
But these elements aren’t only important for geeky gadgets and Mother Earth-friendly rides. They’re also critical to the manufacture of many defense items, including aircraft controls, missile technology and navigation systems.
One important point about the rare earths: they actually aren’t all that rare, say analysts. In fact, there are REEs all over the world. But it’s difficult to find high enough concentrations of these metals together in one location to make an REE deposit economical.
Rare earths started attracting a lot of press attention in September. That’s when Japanese importers accused the Chinese, who supply around 95% of the world’s rare earths, of suspending shipments. Tensions have only increased: China recently cut its quotas on first-half exports of rare earth metals around 35%, a move following an even deeper cut in 2010.
Beijing’s decision, as the Wall Street Journal reported, has sparked criticism that China is taking advantage of its position to raise prices.
"We are very concerned about China's export restraints on rare-earth materials," a spokeswoman from the US Trade Representative's office said. "We have raised our concerns with China and we are continuing to work closely on the issue."
In response, the Chinese have maintained that it’s legitimate for China to restrict exports of rare earth metals and that such a policy doesn't violate World Trade Organization rules. Beijing has maintained that the export cuts are in line with sustainable development, citing worries about the environmental impact of mining rare earths.
(In what appeared like an attempt to reassure users of rare earths, the Chinese commerce industry then reportedly issued a statement that it had not, in fact, fully decided what the total export quotas would be in 2011).
Regardless, tight export quotas have caused prices of rare earths to soar. Rare earth miners like Molycorp (MCP) and Lynas (LYSDY) have enjoyed remarkable triple-digit moves in the last few months. The Market Vectors Rare Earth/Strategic Metals ETF (REMX), which aims to track the performance of publicly traded companies that generate more than 50% of their revenue from these sought-after metals, is up 15% in just the past four weeks.
However, Handwerger, who’s also the editor of Gold Stock Trades, sounds a word of caution. He emphasizes that investing in rare earths is completely different than investing in precious metals such as gold or silver. Rare earths become quite costly during the separation process and very few projects are economically viable, he says.
“The mania phase is upon us, and investors get caught up with all the speculative rare earths promising a dream,” he notes, adding, “Long-term investors might want to wait for a secondary buy point.”
Too Long Didn't Read? The Key Takeaways:
- Rare earth elements (or REEs as they are sometimes referred to) are 17 specialized elements that basically make up the bottom two rows of the Periodic Table of Elements.
- These metals are critical to many of our industrial giants in the latest cutting-edge technologies: Think Apple and its iPhones and iPads; GE and its wind turbines; and GM and its hybrid cars.
- China, which supplies around 95% of the world’s rare earths, recently cut its quotas on first-half exports of rare earth metals around 35%, a move following an even deeper cut in 2010.
- Rare earth miners like Molycorp and Lynas have enjoyed remarkable triple-digit moves in the last few months. The Market Vectors Rare Earth/Strategic Metals ETF is up 15% in just the past four weeks.