Critical Minerals in the Spotlight: Is Gina Rinehart's Rare Earths Focus Worth Investing In?

Amid the global wave of industrialization and energy transition, the strategic value of critical minerals has become increasingly prominent. In its latest Federal Budget 2024-25, the Australian government has announced enhanced support for the critical minerals sector, committing an estimated $7.1 billion over 11 years from 2023/24 to bolster the refining and processing of these essential resources.

Rare earths are a group of 17 elements used in products ranging from lasers and military equipment to magnets in EVs and consumer electronics, and their market demand is continuously expanding. Abandoning fossil fuels and adopting lower-carbon technologies is the best option for countering the accelerating threat of climate change. Access to rare earth elements, key ingredients in many of these technologies, will partly determine which countries will meet their goals for lowering emissions or increasing the proportion of electricity generated from non-fossil-fuel sources. Additionally, the recent escalation of geopolitical risks has also driven up the demand for rare earths.

According to the latest analysis by Market.us, the global rare earth metals market is projected to increase at a compound annual growth rate (CAGR) of 10.4% throughout the forecast period (2023-2032).The total market valuation is set to reach USD 33,464.1 million by 2032.

UBS notes that theEV and wind power generation industries will account for approximately 40% of global demand by 2030, contributing to a 9% CAGR in rare earths demand until then.

China has dominated the market for rare earth elements, but U.S. and Australian scientists and companies are scrambling to catch up as concerns grow over the stability of supply. On May 14, U.S. President Joe Biden announced $18 billion in tariffs on a range of products imported from China, including electric vehicles, computer chips, solar panels, and critical minerals, among other new energy products. Prior to this, the U.S. had established a rare earths supply chain and, for the first time this year, provided up to $850 million (approximately AUD 1.284 billion) in support to two Australia rare earth projects.

Australia boasts abundant mineral resources, including rare earth elements. With the Australian government's supportive policies for critical minerals and the restricted exports from China, the development of Australia's rare earth industry is expected to accelerate, enhancing its position in the global supply chain.

China's rare earths industry has experienced robust growth of over 20% per year since 2020, which has contributed to a decline in prices for key magnet rare earths. During this period, China has solidified its dominance in the sector by restructuring industry players into two major entities: China Northern Rare Earths (CNRE) and China Rare Earth Resources and Technology.In addition, the operating rates at the two leading producers are approaching their full capacity.

Macquarie believes this represents a diminishing likelihood of further significant increases in production, and "this could limit supply growth in the absence of capital". The broker posits that we may be observing the initial phase of a possible "stabilization" in the market for neodymium-praseodymium (NdPr), a key component in magnet production. Notably, prices for these essential magnet rare earths have seen a persistent climb during April and May, with month-over-month price increases of 9.2% and 2.8%, respectively, although from a relatively low starting point.

SMM analyst Yang Jiawen stated that further downside for rare earths is likely to be limited as prices, particularly for NdPr oxide used in permanent magnets, fell by 38% last year and are now near the production cost level.