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Tesla Just Hung a Bullseye on the Next Metal Bull Market [No – It’s Not Lithium]

By Matt Badiali September 2, 2020 Facebook Logo Twitter Logo Email Logo LinkedIn Logo

Demand for exotic “rare earth” metals is a recent phenomenon.

Unlike gold or silver, whose uses date back millennia, demand for little-known metals like neodymium are recent. However, the limited supply and surging demand create a booming market.

While metal prices collapsed in early 2020, they’re now roaring back. And that gives us a fantastic opportunity.

But first, a little history.

We can trace the explosion in rare earth use to giant carmaker Toyota and its secretive G21 group.

“Eiji Toyoda, honorary chairman at the time, urged us to start thinking about a new vision for cars, one for the medium and long term that would prepare us for the 21st century.”

Satoshi Ogiso, currently the director of Toyota Auto Body Company, is the only person to work on the Toyota Prius from planning stages through today. He credits Eiji for direction back in 1993.

Together, they created the G21 program. That was shorthand for Global 21st century.

The G21 team focused on making a car that used less resources and had a lower environmental impact. Little did they know just how huge an impact it would have.

The car drew from work by General Motors and Sumitomo Special Metals done in the 1980s. That team developed a small, powerful neodymium magnet.

The G21 team, tasked with creating a commercially viable “hybrid” electric/gas powertrain, advanced that magnet technology.

Finally, in 1997, the G21 engineers at Toyota unveiled the first-generation Prius.

Neodymium-Iron-Boron magnets were key to its innovative technology. These magnets are called “rare-earth” magnets due to the odd metals in them.

The Prius was the first car to use these magnets to dramatically improve performance in its cars. And its new traction motor soon became the industry standard.

In fact, by 2018, 93% of all electric vehicles used rare-earth magnets.

Now, neodymium magnets are in every cell phone (they drive the voice coil and the autofocus mechanism). They’re also in hard drives, audio equipment, specialized pumps, open MRI machines, anti-lock brakes, and more.

But it’s the electric vehicle (EV) industry that fully embraced the new technology.

In a typical EV, electric motors and solenoids (electromagnets) are everywhere. They control the windows, windshield wipers, door systems, and drive motors.

But when Tesla announced adoption of these magnets in 2018 for its Model 3 Long Range, it kicked demand for neodymium into high gear…

How to Profit From Neodymium’s Projected Price Hike

As a geologist, trust me when I say that neodymium is a difficult metal to find. We don’t just stumble across a deposit on a mountainside and shout: “Eureka!”

Instead, most neodymium comes from weird conglomerates. For example, one of the largest neodymium mines in the world was the Mountain Pass mine in California.

Hosted in 1.4-billion-year-old rocks, it held a high concentration of rare-earth metals in a mineral called bastnaesite (even I had to look that one up).

The mine’s owner, Molycorp, had a spectacular run and then collapse from 2008 to 2015, when it filed for bankruptcy.

Today, the mine still produces metal, but much less than in the past.

China produced 78% of the world’s supply of rare-earth metals in 2018. Estonia, France, and Japan produced 6%, 4%, and 4%, respectively. The rest of the world, including the U.S., produced the last 8%.

That’s a problem.

Supply is now critical because demand is on the rise. The last time demand spiked in 2011, it caused a massive run on the metal and sent its price soaring.

According to the data site Statista, the price of neodymium spiked from $15,427 per metric ton in 2009 to over $250,000 per ton by 2011. While it came back down to settle around $44,000 per metric ton today, it’s forecasted to double by 2025.

The best way to play that trend is through the VanEck Vectors Rare Earth/Strategic Metals ETF (NYSE: REMX).

You can see its chart below:

REMX holds a basket of 21 companies that produce and process exotic metals like cobalt, neodymium, and other exotic metals critical to our new electric economy.

The recent pullback gives us a perfect opportunity to get in for what could be a four- or five-year bull market.

Sincerely,

Matt Badiali

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