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How to invest in rare earths?

While rare earth metals are significant, investing in this sector may seem challenging, and the specific characteristics of portfolios of rare earth ETFs that specialize in this industry make things more complex.


sample of rares earths

Recently, Janet Yellen, the U.S. Treasury Secretary, visited China. During her trip, she expressed concerns about the state aid provided by China to its companies and the market access restrictions for foreign firms. Additionally, she raised concerns about China's newly announced export controls for two critical minerals used in technologies like semiconductors: gallium and germanium. Both these metals fall under the category of critical or strategic metals.

It is important to distinguish between strategic metals and rare earths as they are two different categories of metals, each with its own characteristics and importance. Here is the difference between them.


How it works


Strategic metals, also known as critical metals, refer to a group of metals considered crucial for economic and national security due to their essential use in various industries. They play a vital role in advanced technologies and are characterized by their limited availability or geopolitical significance. These metals encompass a variety of elements such as lithium, cobalt, titanium, tungsten, as well as rare earth metals.


These metals are referred to as "strategic" because they generally represent fundamental sources of revenue for exporting countries. For importing countries, which primarily focus on their processing, these metals also hold strategic importance as they are used in high-tech armament systems, automotive vehicles, electronic products, and medical technologies.


Regarding rare earth metals, they constitute a specific group of elements belonging to the lanthanides series of the periodic table, along with two other elements, scandium, and yttrium. Despite their name, rare earth metals are not necessarily rare in quantity, but they are often found in low concentrations and are challenging to extract and separate economically.


These metals are highly valued for their unique properties and play a crucial role in numerous high-tech applications. They are used in the manufacturing of electronic devices, magnets, catalysts, lasers, energy storage systems, as well as various green technologies like wind turbines and components of electric vehicles.


According to the Institute of Rare Earths and Strategic Metals, "Many people don't realize the tremendous impact of rare earths on their daily lives, yet it's almost impossible to use modern technology that doesn't contain them."


listing of strategic metals and rare earth element

The predominance of China


China holds a dominant position as the primary producer of rare earth metals, and this dominance comes with significant risks in various ways. Firstly, China's monopoly in the production of these critical elements leads to a high dependence of countries worldwide on it.


These rare earth metals play a crucial role in various strategic industries, such as electronics, renewable energy technologies, and defense systems. Relying on a single country for such a critical resource exposes nations to vulnerabilities in the supply chain and potential disruptions, leading to severe economic and geopolitical consequences.


Regarding the total number of critical raw materials, China serves as the world's primary supplier for 66% of individual critical raw materials. These include not only all rare earth elements but also other essential raw materials such as magnesium, tungsten, antimony, gallium, and germanium, among others.



chart of rare earth production by country

Furthermore, China's control over rare earth metals grants it significant influence in international relations. In the past, the country has demonstrated its willingness to leverage this advantage by imposing export restrictions and quotas, leading to price fluctuations and market uncertainty.

China's dominant position in the rare earth metals industry also raises concerns about the environment and sustainability, as the extraction and processing of these minerals often involve environmentally harmful practices.


How to invest in rare earths?


There are various ways to invest in rare earth metals and critical metals. One of these methods is through the use of futures contracts, but this can be complex and comes with specific risks related to the structure of the futures market, such as contango and backwardation, which may not be suitable for all investors.


Another approach is to invest in companies involved in the extraction and processing of these metals, although this too can be considered complex for the average investor.


Alternatively, investors can opt for an ETF. The VanEck Rare Earth and Strategic Metals UCITS ETF (REMX - IE0002PG6CA6) is the only ETF available for individual European investors in this field, but it can be challenging to quantify the portfolio's exposure to each individual metal. It is essential to mention that this ETF does not directly invest in the raw materials but rather in stocks of companies involved in the production, refining, and recycling of rare earths and strategic metals and minerals.


However, for a strategic and secure approach to investing in this field, the best option is to do so with our company, Elio Strategy, which is specialized and recognized as one of the best in this sector. By choosing Elio Strategy, investors can benefit from our expertise and specialized approach in rare earths and strategic metals, enabling them to make the most of their investments. Request your brochure: https://www.eliostrategy.com/brochure


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