On our first date, we talked about magnets…
That’s right: magnets.
And, no, I don’t mean the kind of metaphorical magnetism between two people.
I mean literal magnets.
I met Chelsea (not her real name) through Bumble. If you don’t know, Bumble is just another one of those dating apps that hopeless yuppie singles like myself use to meet women.
We met at a quiet downtown club for cocktails. Chelsea was tall and thin, with a kind smile, and, surprisingly, prettier than in her photos. I ordered a Barbancourt Cup: a sour, rum-based drink with a subtle sweetness. She, a French 75: a gin-based affair with similar characteristics. I made small talk and asked Chelsea what she did for work.
She told me she works for a medical device startup. Her company has developed a better method of providing clearer ultrasound results using specialized magnets… neodymium magnets to be exact.
My eyes widened at this.
Neodymium is an important metal we’ve been talking about here in Energy and Capital for at least a decade. I guess you never know when your knowledge of neodymium will come in handy.
It’s one of the rare-earth metals mainly used to make high-powered magnets… the most powerful, in fact. A neodymium magnet weighing only a few grams can lift a thousand times its own weight.
Scientists at Florida’s National High Magnetic Field Laboratory (MagLab) recently used neodymium to create what is today the world’s most powerful magnet.
Nicknamed Project 11, this beast generates a magnetic field strength that’s over 800,000 times more powerful than the Earth’s. So you probably want to be sure to remove any metal body piercings before firing this baby up.
World’s Strongest Magnet: Project 11 at MagLab
Neodymium magnets are named after the tricky-to-pronounce element. But the magnets themselves are actually made of a neodymium/iron/boron alloy. They’re cheaper, lighter, and stronger than any other magnet known today.
(I wisely mentioned none of this during the date with Chelsea.)
So, what exactly makes these neodymium magnets so powerful?
Well, I don’t know.
But I emailed a chemist to ask that question myself. Here’s what the chemist said:
The strength of neodymium magnets is most importantly due to the tetragonal crystal structure of Nd2Fe14B, which has exceptionally high uniaxial magnetocrystalline anisotropy.
So… I still don’t know. But I do know these powerful magnets are essential to our modern lives.
As I already mentioned, Chelsea is using them to bring clearer ultrasound results to the healthcare field. But this is only one of the hundreds of medical applications for neodymium magnets.
Modern MRI machines, blood separators, infusion pumps, and a wide range of other lifesaving medical devices all use these magnets to improve efficiency and lower costs.
Neodymium magnets are also a critical component in consumer electronics. In fact, there’s little doubt you have several neodymium magnets surrounding you right now.
Tiny neodymium magnets are used in laptop, tablet, and PC hard disk drives to magnetize and demagnetize a thin film of material that records and stores data.
Neodymium magnets are used for the anti-locking braking system in your car…
Any time you use credit or debit card, the point-of-sale device uses a neodymium magnet to read your card with a swipe…
Neodymium magnets are used in magnetic door locks…
They’re in power tools…
Even cabinetmakers often use neodymium magnets to secure doors.
Point is, these things are all around you. Magnets make your life a lot better.
And as the world continues to develop, demand for strong neodymium magnets is rapidly growing.
The global permanent magnet market at large is expected to grow at a CAGR of about 9% through 2025. But there’s one very specific market where demand for neodymium magnets is expected to grow by leaps and bounds: the electric vehicle market.
Neodymium is as Important to Electric Vehicles as Lithium
You already know electric vehicles need lithium for their batteries.
But they also need very strong magnets for their motors.
Every electric motor basically work like this…
An electric current is directed through a magnified field. This produces motion and converts electrical energy to mechanical energy.
Permanent magnets (the north and south magnets in the illustration above) are used to create this magnified field. And the best permanent magnets for electric motors are neodymium magnets simply because they’re the most powerful.
By now I’m sure you’re starting to see the bigger picture…
The global EV market is expected to grow at a CAGR of close to 23% through 2021. The IEA’s low projection is a 20-fold increase in demand over 10 years.
As a result, the EV industry is projected to be the fastest-growing end-use industry segment in the global permanent magnet market.
And that means the demand for raw neodymium is expected to soar.
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Auto manufactures are now scrambling to secure resources. And prices for neodymium reflect the scramble quite clearly.
In the past 12 months, the price of neodymium has nearly doubled and is now over $60,000 per ton. Note: Lithium costs about $20,000 per ton.
There is no open futures market for neodymium. Prices generally reflect mainstream cash prices in China’s metals spot market.
Like other vital materials to the EV revolution, including cobalt, neodymium supplies are scarce.
Neodymium is classified as a rare earth metal, although it’s not technically all that rare. In fact, neodymium is not much rarer than copper or nickel. The term “rare earth” simply applies to a category of elements that have similar chemical properties.
But actually mining neodymium involves a host of other variables. Most important to global supplies, however, is geopolitics.
Over 90% of the world’s neodymium and other rare earth elements are currently produced in one country: China.
Inside the Chinese borders is over 40% of the world’s rare earth resources. And geopolitics can easily make mineral supplies scarce.
In 2010, China cut its rare earth exports by 40% and completely cut off supplies to Japan over a territorial dispute. This caused prices for all rare earths, including neodymium, to soar.
The halt in supplies was globally challenged by several nations, resulting in a ruling against China’s export quotas by the World Trade Organization.
In response, the U.S. Department of Energy initiated Project REACT, short for “Rare Earth Alternatives in Critical Technologies,” to specifically address the growing global shortage of rare earth materials used in magnets.
Today, the United States is 100% reliant on imports for neodymium and many other rare earth elements. There’s only one mine in America, which only produces a small amount of rare earth metals, and it’s now owned by a Chinese firm. The Mountain Pass Mine in California was operated by Molycorp, Inc. But the company filed for bankruptcy in 2015, and the mine has since been purchased by the Chinese rare earth consortium Shenghe Resources.
Investing in Neodymium and Rare Earth Metals
It’s not so easy.
There are several large mining companies like BHP Billiton (NYSE: BBL) and Freeport-McMoRan (NYSE: FCX) that mine small amounts of rare earth elements. But there is no major miner with pure rare earth exposure.
And because the rare earth elements are always found naturally grouped together, there’s no such thing as a pure neodymium mine.
There are also several junior exploration companies seeking a big find. But no doubt many are simply trying to capitalize on the rare earth hype and have no assets of any real value… Most are scams.
The Market Vectors Rare Earth/Strategic Metals ETF (NYSEArca: REMX) is an option. REMX tracks the performance of a basket of companies involved in producing, refining, and recycling rare earth and strategic metals. But again, this is not a pure play on neodymium or even rare earths. Components of REMX produce a wide array of chemical products. There are also expense fees to consider with any ETF.
One specific Japanese company with a significant neodymium asset to mention is Hitachi. The company owns over 600 patents associated with neodymium magnets and is recognized as a worldwide leader in this field with innovations in its power tools. This may serve the company well as the EV market proliferates.
Lithium may be getting all the attention in the EV market. But EV manufacturers are going to need neodymium magnets just as much.
We will be on the lookout for breakout investment opportunities in the neodymium magnet market and plan to bring you some new ideas very soon. So stay tuned.
Oh, and also stay tuned to see if there’s a second date. I might bring up OPEC in conversation and see where that goes.
Until next time,
As an editor at Energy and Capital, Luke’s analysis and market research reaches hundreds of thousands of investors every day. Luke is also the investment director of Angel Publishing’s new Secret Stock Files newsletter, which helps investors leverage the future supply/demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.