What's Happening?
Goldman Sachs has issued a warning about potential disruptions in the global supply chains of rare earths and other critical minerals. The bank highlighted China's dominance in mining and refining these
materials, noting that China controls 69% of global rare earth mining, 92% of refining, and 98% of magnet manufacturing. The warning comes after China expanded export curbs on rare earths, adding new elements and increasing scrutiny for semiconductor users. Goldman Sachs emphasized the geopolitical significance of rare earths, which are essential for high-tech industries, including batteries, computer chips, and defense equipment.
Why It's Important?
The potential disruption in the supply of rare earths could have significant economic implications, with Goldman Sachs estimating that a 10% disruption could result in $150 billion in lost economic output. This situation underscores the vulnerability of industries reliant on these materials and highlights the need for countries to develop independent supply chains. The warning also points to inflationary pressures that could arise from shortages, affecting various sectors of the economy. As nations scramble to secure their supply chains, the geopolitical landscape surrounding rare earths is likely to become increasingly complex.
What's Next?
Countries are expected to intensify efforts to build independent supply chains for rare earths and magnets. However, Goldman Sachs notes several challenges, including geological scarcity, technological complexity, and environmental concerns. Developing new mines and refining facilities requires significant time and expertise, posing barriers to rapid progress. The bank suggests that investors consider equities in companies like Iluka Resources, Lynas Rare Earths, and MP Materials Corp to manage disruption risks. Additionally, commodities such as cobalt, oil, and natural gas may face rising risks due to geopolitical tensions.
Beyond the Headlines
The focus on rare earths highlights broader issues related to global trade and supply chain vulnerabilities. As countries seek to reduce reliance on China, there may be increased investment in alternative sources and technologies. This shift could lead to new alliances and partnerships, reshaping the geopolitical landscape. Furthermore, the emphasis on securing critical minerals reflects the growing importance of these resources in the development of advanced technologies and defense capabilities, potentially driving innovation and economic growth.
