Rare earth investments between risks and opportunities
Raw materials
Posted by MoneyController on 02.12.2022
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The issues of climate change and energy transition are becoming increasingly urgent. In this respect, renewable energies can make a fundamental contribution. However, the realisation of renewable energy plants requires a supply chain within which the so-called 'rare earths' are decisive. In this regard, we take up some considerations by Marcello Mocellin, published in the 'Atlante' magazine of the Enciclopedia Treccani.
As Mocellin well illustrates, rare earths are so called not so much because of their scarcity in nature, but because their extraction and processing involves a considerable expenditure of resources and the production of equally considerable quantities of waste products. They consist of seventeen chemical elements placed side by side in the periodic table and united by certain properties. The presence of rare earths is concentrated in specific countries, including China, which holds 37% of the world's reserves. It should be added that China can also count on a series of mining concessions on the African continent, aimed precisely at extracting further quantities of rare earths (and other minerals). The concentration of these resources in the hands of China, and a few other market players, is the first risk investors run.
Global supply chains have so far had a great cost advantage. Today, however, as a result of the pandemic and geopolitical conflicts (Russia's war in Ukraine, but also the tensions between China and the US), the risks have definitely increased. Mocellin speaks in this regard of the risks linked to the 'supply crunch', i.e. the bottlenecks in those supply chains. Rare earths, from this point of view, are representative, but one could also mention the case of polysilicon, which is needed for the production of solar cells and of which China holds 80% of world production.
Overcoming these risks could, however, be an opportunity for investors. In the field of solar energy, the International Energy Agency (IEA) calculates that the restructuring of supply chains could attract as much as 130 billion dollars of investment and generate a strong employment driver (1,300 jobs per giga watt). Moreover, among the various projects concerning the energy transition, Mocellin writes that the European Union has already moved to deal with the critical issues concerning rare earths: in 2020, the Commission drew up a document entitled 'Critical Raw Materials Resilience: Charting a Path towards greater Security and Sustainability', in which it emphasised the need to focus on a diversification of supplies and more efficient recovery and reuse processes.
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