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Rare Earths : Doubling of Demand


Due to their limited availability, rare metals are emerging as an essential resource for bridging digital technologies and renewable energies. We cannot advance the artificial intelligence revolution and energy transition without consuming more of this resource.

Out of the 120 million tons of global reserves, 90% are located in 5 countries (44 tons in China, 22 in Vietnam, 21 in Brazil, 12 in Russia, and 7 in India). China accounts for 70% of the world's rare earth production, followed by the United States (14%) and Australia (6%).



Exponential Growth in Demand


The demand for rare earths has seen remarkable growth over the past five years, doubling in volume. Specifically in Europe, this demand is expected to multiply by six, reflecting the unprecedented rise of this essential resource. The revenues generated by rare earths were estimated at 320 billion in 2022, and according to forecasts, they are expected to double by 2040, confirming the title 'Rare Earths: Doubling of Demand.



Carbon Neutrality Challenge


However, a significant challenge looms on the horizon. To achieve carbon neutrality over the next 25 years, researchers at KU Leuven University have calculated that Europe will need to dramatically increase its consumption of rare earths, multiplying it by 26. This requirement could potentially further strengthen Europe's dependence on China for rare earths. This increased dependence raises concerns about supply security and the economic sovereignty of the region.



Reducing Dependence: Various Approaches


There are several possible approaches to reduce this dependence. First and foremost, it is imperative that imports of raw materials from third countries do not exceed 65% of annual consumption, with 15% of these needs being met through domestic recycling.

Furthermore, the need to negotiate free trade agreements with major global producers will become increasingly urgent.

Finally, there is a need to encourage the development of exploration and production activities on the European continent. Earlier this year, mining group LKAB made a significant discovery by identifying a deposit equivalent to one million tons of rare metals in northern Sweden, the largest in Europe, with the prospect of exploitation by 2035-2040.



le siege de la compagnie LKAB en suede

According to calculations by LKAB (Swedish mining company), the Per Geijer deposit, located north of Kiruna in Sweden, is estimated to contain at least one million tons of rare earth oxides, in addition to the equivalent of a quarter of Europe's phosphorus needs and 400 million tons of iron ore.




Issues


The economic consequences associated with dependence on rare earth producers are well-established and play a significant role in geopolitical tensions between the United States and China. Recently, China announced limitations on the export of germanium and gallium, two crucial rare earths for the semiconductor industry, in response to restrictions imposed by the United States on the export of technologies from China. Consequently, access to rare earths has become a crucial strategic asset for leading in the global digital age.



Investment


When considering investments in the rare earth sector, it's important to take into account the legal aspects and financial market differences between China and France. Instead of opting for direct investment in publicly traded mining company stocks in China.


Investing directly in rare metals can indeed be complex due to challenges related to accessing futures markets. For instance, Chinese regulatory restrictions may limit foreign investors' access to local rare metals markets. Furthermore, the performance of mining company stocks in China can be influenced by country-specific economic, political, and environmental factors, which can increase volatility and risks for foreign investors.


In 2023, developed markets recorded a growth of 15%, while the rare metals sector remained stagnant at 0%, with a decrease of -3% for Chinese stocks. It's important to note that the valuation of Chinese stocks is currently at its lowest level in 20 years, which adds a particular appeal to long-term investment.


However, to maximize potential benefits while minimizing risks associated with fluctuations in the Chinese markets, it is strongly recommended that investors consider the option of investing through Elio Strategy. This approach allows investors to directly own a diversified basket of rare earths, thus spreading risks across multiple assets. For example, the basket can contain a variety of rare earths such as neodymium, dysprosium, praseodymium, and many others, providing a balanced exposure to the market without the need to pick individual stocks.


Furthermore, it's important to note that only a few banks can offer investments in China due to geopolitical tensions and limited visibility into the operations of local businesses. This underscores the importance of going through an entity like Elio Strategy, which has the necessary expertise to navigate these complexities while providing investors with a safer and diversified access to rare earth market opportunities. This professional and diversified approach is a wise way for investors to participate in the growth potential of rare earths while minimizing the risks associated with a direct investment in China.


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