Rare Earths Rise Again
For the uninitiated, rare earths are a group of metals that are critical components of everything from batteries and wind turbines to smartphones and high-tech war machines.
As such, they’re highly critical to the defense and clean-energy ambitions of governments across the globe.
But the production and refinement of this critical group of elements are more or lessmonopolized by China.
If you’re having déjà vu, you’re not alone.
This same tale spawned a rare-earth stock run back in 2009 that led to thousands-of-percent wins for the best-positioned stocks.
The narrative hasn’t changed any in the past decade.
- The supply of rare earth elements is still controlled by China.
- Rare earth elements are as critical as ever.
- There are still only a small handful of quality ways to play it.
What’s different this time is the electric car narrative has caught on in a real way. I needn’t tell you what shares of Tesla have been doing lately.
There is also an army of armchair retail traders hell-bent on chasing the entire electric vehicle supply chain.
This, combined with a renewed government focus on rare earths, makes it time to revisit the space once again. Especially because China is once again toying with the idea of limiting rare earth exports.
You may be following along with some of this if you also read Foundational Profits. In that letter, we have been in MP Materials (NYSE: MP) since it came to list via SPAC — and have done quite well.
The European Commission warned last year that its “over-reliance on imports of critical raw materials threatens to undermine crucial industries and expose the bloc to supply squeezes by China and other resource-rich countries,” according to the Financial Times.
It had both Light Rare Earths and Heavy Rare Earths on its “EU 2020 Critical Resources” list.
The FT added that this list “highlights growing concerns over China’s dominance in markets for common industrial metals, adding to longstanding worries over Beijing’s control of many “rare earth” elements used in consumer electronics and wind turbines.”
In the U.S., last year House lawmakers introduced a bipartisan bill aimed at reducing dependence on China for rare earths used in everything from electric vehicles to missiles to wind turbines.
Bipartisan isn’t something you hear a lot these days, but the bill is co-authored by a Republican and a Democrat, and is similar to one already introduced in the Senate by Ted Cruz. The bill would give tax incentives to companies mining, reclaiming, or recycling critical
elements from U.S. deposits.
Here in 2021, the pressure has continued to mount, with China threatening once again to limit rare earth exports, including to U.S. defense contractors, which need them to make F-35 jets and other modern warfare gadgetry.
China passed draft legislation that would allow this three years ago, and in January its Ministry of Industry and Information Technology proposed a plan to control production and export of REEs to possibly disrupt US manufacturing.
President Biden repsonded by signing an executive order that will require the government to produce unclassified assessments of key industries and their supply chains, including semiconductor manufacturing, electric car batteries, medical supplies, and rare earth elements such as the ones used in iPhones and military systems.
Rare earth stocks have repsonded by increasing dramatically. The VanEck Vectors ETF (NYSE: REMX) was up 10% the week of the announcement, and already up more than 33% in 2021.
But its four largest holdings of rare earth stocks are all Chinese, representing more than 31% of the fund.
Investors are going to start looking down the chain for ways to play rare earths and electric vehicles. You should be looking ahead of them. Both Gerardo and I cover rare earth stocks in our publications.
Call it like you see it,
Nick Hodge
Editor, Daily Profit Cycle
Nick Hodge is the co-owner and publisher of Daily Profit Cycle and Resource Stock Digest. He's also the founder of Hodge Family Office, the umbrella organization for his three premium services: Hodge Family Office, Family Office Advantage, and Foundational Profits. He specializes in private placements and speculations in early stage ventures, and has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world.
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