Our Equities Trader, Joseph Raad, discusses macroeconomic themes for the month of October.
This year has been very tumultuous for investors, with multi-decade high inflation figures and record-breaking interest rate hikes placing much stress on economies, and subsequently, global equity markets. The monetary and fiscal policies implemented post-pandemic have left many economists forecasting elevated volatility and uncertainty in most developed markets for the foreseeable future. The global initiative in working towards decarbonisation, however, has helped cushion the damage on the ASX in comparison to other exchanges due to our country’s resource exposure. Almost all economists and investors alike believe the demand for most metals and commodities will only increase from here on out to meet these net-zero targets. One group which is starting to prove more prevalent for this cause is rare earths.
Rare earth elements (REE) are a set of seventeen metallic elements and are essential in the production of many high-tech devices such as mobile phones, computer hard drives, batteries, medical imaging and more. Most notably, however, is its uses in electric vehicles and wind power turbines, which are growing at an exponential rate for both demand and production.
According to Fortune Business Insights, the global REE market is expected to grow from USD $2.8B in 2021 to USD $5.5B in 2028, representing a Compound annual growth rate (CAGR) of 10% during this period. Furthermore, according to Arafura Resources, global consumption of rare earths reached 167,000 tonnes of total rare earth oxide (TREO) in 2020 and is forecasted to increase to 280,000 tonnes by 2030.
China is the world’s largest producer of REE, accounting for approximately 80% of the global supply in 2020. Research groups such as Adamas Intelligence, however, believe that China could stop exporting the minerals within the next decade due to increasing domestic demand and a shortage in global supply. In a report published in April, Adamas said that the lack of new primary and secondary supply sources for rare earth oxides in the market from 2022 onwards, coupled with the inability of existing producers to increase their output, will create a major neodymium-praseodymium (NdPr) oxide shortage by 2035.
To meet demand moving forward, additional supply is expected to come out of other countries such as Australia and North America. There are now quite a few ASX companies placing a large emphasis on exploring and producing these elements. Some to keep an eye out for include Lynas Rare Earths (ASX: LYC), Arafura Resources (ASX: ARU), and Dateline Resources (ASX: DTR).
Stock Pick
Lynas Rare Earth is an Australian rare-earths mining company. It has two operations major operations: a mining and concentration plant and a refining facility.
Arafura Resources Limited is an Australian mineral exploration company focusing on rare earth elements. It is headquartered in Perth, Western Australia.
Dateline Resources is focused on gold mining and exploration in North America. Dateline currently has three key projects in motion, Colosseum, Gold Links, and Green Mountain.
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