Highlights
- Research reveals complex interactions between rare earth prices, clean energy markets, and tech sectors during global crises.
- Geopolitical events amplify rare earth market volatility, creating potential economic vulnerabilities and supply chain risks.
- Chinese market dominance in rare earth elements could significantly impact future technological and clean energy development.
This study, led by Xiaoming Yang, College of Business Administration, Southwestern University of Finance and Economics, Chengdu, China and colleagues from Russia, Hungary and Saudi Arabia serve the reader the central hypothesis examining the interplay between rare earth prices, clean energy innovation, and the market resilience of tech companies, particularly during global crises like the COVID-19 pandemic and the Russia-Ukraine conflict. The study suggests that rare earth price volatility significantly affects both clean energy and tech markets, but in different ways depending on market conditions, timeframes, and crisis-induced disruptions.
Published in Resources Policy (opens in a new tab) in 2024, the authors employ use of Cross-Quantilogram (CQ) and Wavelet Local Multiple Correlation (WLMC) techniques, the authors of this paper dissect the bidirectional dependencies between rare earth element prices (REMX), clean energy markets (NEX), and the high-tech sector (PSE) from February 2018 to February 2023.
So what do they find?
- A positive correlation between rare earth prices and clean energy, but only in extreme market conditions. Both indices move in tandem when they hit their highest or lowest quantiles. However, when clean energy slumps while rare earth prices soar, their relationship weakens or even turns negative.
- A dynamic but fragile connection between tech markets and rare earths. The technology sector co-moves with rare earth prices in short- and medium-term trends, but this link becomes negative in the long run, suggesting that prolonged price hikes in rare earth elements could erode tech profitability.
- Geopolitical shocks (COVID-19, Ukraine conflict) amplify rare earth market volatility. Rare earths respond more sharply to crises than clean energy or tech stocks, making them a key barometer of economic instability.
These findings suggest that rare earth elements are a double-edged sword—critical for clean energy and tech growth but also a highly volatile risk factor that can destabilize markets if supply chains remain in the hands of a few dominant players (namely, China).
Interrogating the Key Breakthroughs
This research underscores a breakthrough understanding of the asymmetric dependence between rare earth markets and clean energy/tech industries. It highlights first that rare earth elements don’t just track clean energy growth—they dictate its financial viability. If prices surge unpredictably, the cost of transitioning to renewables escalates, jeopardizing global climate goals. Second, tech companies are more exposed than previously thought. While the sector relies heavily on rare earths for manufacturing, long-term price spikes act as a drag on stock performance, potentially dampening innovation. And finally, crises expose a dangerous vulnerability. Global disruptions (pandemics, wars, trade disputes) hit rare earth markets with more force than other sectors, creating ripple effects across industries that depend on them.
Limitations and Hard-Hitting Conclusion
Despite its cutting-edge econometric approach, the study does not account for future market interventions—such as U.S. and European efforts to decouple from Chinese supply chains, emerging rare earth alternatives (like Niron Magnetics’ iron-based magnets), or the potential impact of mining advancements. Moreover, while it highlights price volatility, it stops short of predicting supply chain shocks or monopolistic pricing strategies, both of which could redefine market behavior. Rare Earth Exchanges frequently chronicles Chinese actions impacting the markets, for example.
The verdict? The rare earth market is an economic pressure point, a geopolitical chess piece, and a high-stakes gamble all in one. If the West fails to break free from China’s dominance, the very foundation of clean energy and tech innovation could be held hostage. Investors, policymakers, and industry leaders must act swiftly—because in this race for technological supremacy, control over rare earths isn’t just about resources; it’s about who gets to shape the future.
Leave a Reply