Rare Earths: Is China Serious? New Opportunities for You!

Last Updated: 14. November 2023By

Rare Earths: Is China Serious? New Opportunities for You! In laptops, cell phones, TVs, electric motors, wind turbines, fuel cells, laser systems, sensors, radars, lamps, nuclear reactors, nuclear magnetic tomographs or X-ray machines: the so-called rare earths are indispensable for the functioning of the modern world.

Without these metals, there would be no iPhones from Apple, no Model 3 from Tesla, no fighter jets from Lockheed Martin and no wind turbines from Nordex.

Rare Earths: China Holds the West in Its Hand Although rare earths are not as rare as their name suggests, an enormous strategic problem is associated with these raw materials. You will guess it: China is at the center. The People’s Republic controls the majority of global production and delivery in the rare earth sector. According to estimates from the US Geological Survey, 70 percent of global rare earth production came from China last year. Other experts and data providers, however, see an even higher market share.

China could use this dominance to severely hinder the computer industry, military technology and the energy transition of Western states by simply withholding rare earths from the West. Recently, Beijing had already established export controls for critical raw materials such as germanium, gallium and graphite to retaliate against US sanctions against the Chinese chip sector.

New Export Controls: Beijing Flexing Its Muscles Now it seems that more and more rare earths are also coming into play. According to media reports, the Chinese Ministry of Trade took the rare earth metals into a special list on November 7. This includes bulk goods for which the respective companies have to report extensive information to the Chinese authorities before export.

This includes information on the delivery quantity, the specific type of material, the composition and, last but not least, the destination. Chinese rare earth exporters therefore have to disclose to the state exactly which quantities, for example, are delivered to Western buyers. This is still by no means an export ban. However, it is to be understood as a clear warning signal.

Experts attribute the measure to the Asia-Pacific Summit (APEC) in San Francisco, which is scheduled for mid-November. There, US President Joe Biden and Chinese President Xi Jinping are to meet for a bilateral meeting. The calculation: The new rare earth controls could strengthen China’s negotiating position and persuade Biden to make concessions.

High premiums for non-Chinese metals? You as an investor can draw an important conclusion from this. After all, Western states and industrial conglomerates are likely to rely more and more on non-Chinese rare earth suppliers in the coming years in order to minimize political risks. The corresponding rare earth producers can then demand significantly higher prices for their metals, as a new report from the news agency Reuters suggests.

According to this, Canadian, German and Australian exploration companies as well as rare earth processors are pushing for premium prices for their products. These include the Chilean company Aclara Resources, which is developing two rare earth projects in Chile and Brazil. Aclara recently completed a pilot phase around the Chilean project Penco Module and plans to start production there soon. You can see where this location is on the map:

Source: (https://www.aclara-re.com/pencomodule-overview )

Other companies, according to Reuters, are the Australian Ionic Rare Earths, the Canadian Neo Performance Materials and the German Vacuum Smelting (VAC). The latter, based in Hanau, specializes in the production of magnetic alloys from rare earths. Such rare earth magnets are used, among other things, in motors and generators.

China is also by far the world market leader when it comes to the further processing of rare earths, for example into magnets. Downstream producers such as VAC, which produce the magnets outside the People’s Republic, can also expect price impulses.

Will China’s price monopoly break? Background: China’s dominance in the rare earth sector has given the People’s Republic comprehensive pricing power. The Chinese players can currently control the global price level according to their own discretion. So far, China has kept prices artificially low, especially for rare earth magnets, to prevent Western competitors from investing in the sector and thus consolidating its own dominance.

If more Western players enter the market in the coming years, this could at least weaken the quasi-monopoly of the Chinese. The new export controls of the authorities there certainly accelerate this development. Buyers in the West could go along with the higher prices outside of China for reasons of risk minimization. The People’s Republic would thus lose part of its price control.

My conclusion for you Shares of non-Chinese rare earth players are highly interesting in my opinion. In the long run, these titles could bring in high returns – especially if the political conflict between the West and China continues to intensify.

However, as an investor, you should consider that the extraction and, above all, the primary further processing of rare earths are associated with considerable environmental challenges. Outside of China, players have therefore had problems in recent years in obtaining approvals for their projects.

In view of China’s aggressive trade policy, it must now be discussed whether this hesitation is still appropriate.