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Over 2,100%.
That’s the average gain that rare earth elements (REEs) as a group delivered during its last bull market.
Take a look at the chart below…
Between 2010 and 2011, Lanthanum and Cerium appreciated by 4,141% and 2,978%, respectively.
Junior rare earths mining stocks – smaller, exploration-type companies – did even better.
So, what happened there?
China.
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In 2010, the country stopped exports of rare earths to Japan. This was due to a diplomatic incident involving a Chinese fishing trawler.
Long story short, the Chinese fishing boat collided with a Japanese coast guard patrol boat… so the Japanese arrested the fishing boat’s captain. The clash caused a major dispute between the two countries.
But it also sparked a mania in rare earths and related stocks that lasted for about a year.
So why am I telling you this now?
You may know that rare earth elements are used in everything from iPhones, electric vehicles (EVs), flat-screen TVs, and computers to sophisticated military equipment.
They are essential to modern life… much more so than they were back in 2010.
But here’s the problem: The rare earths market today is in a precarious situation.
You see, the current geopolitical conflict between the U.S. and China is threatening to unleash a bull market of epic proportions in rare earths… one that could overshadow the 2010-2011 bull run.
There’s a lot at play here. So today, I’ll shed light on some important recent developments in this space and show you what they mean for you and your money.
China Is Back at It Again
Mark Twain once said that “history never repeats itself, but it does often rhyme.”
I was reminded of this recently when I saw headlines like this one…
China Contemplating Export Ban on Rare Earth Magnets
According to a report by Nikkei, China is considering an export ban on “certain rare-earth magnet technology.”
In other words, the Chinese government is going after high-performance rare earth magnets.
This is a huge deal. Here’s why…
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Rare earth magnets have many military applications.
They go into cruise missiles, bombers, rockets, drones, and all sorts of other cutting-edge military equipment. The U.S. Javelin missiles and F-35 fighter jets are so packed with these magnets, they are almost bursting at the seams.
And China produces and processes roughly 70% of global rare earth supplies. Have a look…
Former Chinese leader Deng Xiaoping once said, “The Middle East has oil. China has rare earths.”
He was right.
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China knows that the U.S. is wholly dependent on REEs for its most sophisticated military equipment.
And party bosses in Beijing have been wanting to hit the U.S. where it hurts for a while now.
For example, in February 2021, the Financial Times reported that the Chinese government had reached out to its rare earths industry.
Basically, it asked, “How much damage could we do to the U.S. military if we cut off rare earth exports? Could we cripple its production of new fighter jets?”
Also, China aims to use rare earths as a bargaining tool.
That’s because in the past year, the U.S. began to thwart China’s access to advanced semiconductor technology.
Through the CHIPS Act, the Biden administration moved to limit the export of U.S chip technology to China.
The U.S. also brought on key chip-making countries like Japan and the Netherlands to the export limits.
And China is already behind when it comes to advanced semiconductors. For instance, it imports almost all of the chips necessary for manufacturing electric vehicles.
So at this point, China choking off rare earth supplies isn’t a wild speculation. The country has done it before over trivial matters.
And if history is any guide, there’s a good chance China’s rare earths ban will happen again in the near future.
What This Means for Your Money
If China bans rare earths exports, it can lead to another mania in this market.
But investing in rare earths is not easy.
The list of quality companies mining rare earths is small. Plus, most companies that produce a meaningful amount are listed in China. So they’re difficult for everyday investors to access.
But there’s another way to take advantage of this opportunity.
The VanEck Vectors Rare Earth/Strategic Metals ETF (REMX) is a straightforward rare earths investment you can access with a regular brokerage account.
This exchange-traded fund (ETF) gives you broad exposure to the rare earths industry. It holds companies involved in producing, refining, and recycling rare earth and strategic metals and minerals.
Now, it’s true that the fund holds quite a few China-based companies. That’s because it accurately reflects the current state of rare earth minerals as the world produces them today.
But as more countries start taking action to fight China’s dominance in the rare earths space, we can expect to see China’s percentage of REMX shift.
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Regards,
Nomi Prins
Editor, Inside Wall Street with Nomi Prins