Highlights

• A peer-reviewed study shows energy prices and equity market volatility systematically precede and influence strategic metals pricing, with materials acting as price-takers rather than price-makers in global finance.
• China's 80-90% control of global rare earth separation and refining converts macroeconomic shocks into structural supply vulnerabilities, as financial contagion moves in days while alternative processing capacity takes years to build.
• Geopolitical coercion in resource-rich states like Venezuela may worsen supply-chain fragility rather than improve it, as regime pressure often disrupts infrastructure and accelerates adversarial trade flows benefiting China.

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A new peer-reviewed study by Arkadiusz Orzechowski, an economist at the SGH Warsaw School of Economics, offers a clear and timely reminder that rare earth–linked materials may not trade in a vacuum. Published in the Warsaw Forum of Economic Sociology, the author examines directional relationships between the returns of lead and zinc, WTI crude oil, and the EURO STOXX 50 equity index.

While the study is financial rather than geological, its findings reinforce a critical strategic reality: because China dominates rare earth processing, shocks in energy or financial markets can rapidly transmit into strategic materials pricing—often beyond the control of producing nations or consuming industries.

What the Study Set Out to Do—In Plain Language

Markets frequently move together, but correlation alone does not reveal causation. Orzechowski’s goal was to determine whether changes in one market systematically precede and help predict changes in another. To do this, he employed Granger causality (opens in a new tab), a standard econometric technique used to identify temporal lead–lag relationships in financial data.

Although the study analyzes lead and zinc—metals often grouped with strategic materials in financial datasets rather than rare earth oxides themselves—the relevance to rare earths is practical and direct. Most investors, manufacturers, and policymakers encounter rare earth risk through prices, indices, contracts, and downstream components, not mine-site geology.

Study Methods: How the Analysis Works

The paper uses Vector Autoregression (VAR) models, which allow multiple variables—metal returns, oil prices, and equity indices—to influence each other dynamically without pre-assigning a single driver.

Two tools are central to the analysis:

• Impulse Response Functions (IRFs): Trace how a shock in one market (such as oil prices) affects others over time.
• Forecast Error Variance Decomposition (FEVD): Estimates how much of future price movement in one asset is explained by shocks originating elsewhere.

Put simply, the study asks whether metals “listen” more to oil markets, equity markets, or their own past behavior.

Financial Markets Matter—A Lot

Several patterns emerge that are relevant beyond academia:

Patterns	Summary
Energy prices influence metal returns	Shocks in WTI crude oil often precede movements in lead and zinc, reflecting the central role of energy costs in extraction, processing, and logistics.
Equity markets transmit macro risk into metals.	Volatility in the EURO STOXX 50 helps explain subsequent volatility in metals, suggesting that investor sentiment and broader economic stress spill into strategic materials pricing.
Feedback exists—but it is asymmetric	Metals tend to respond more strongly to oil and equity shocks than they influence those markets in return, reinforcing the idea that strategic materials are frequently price-takers in global finance.

Why This Matters for Rare Earths—and China’s Processing Dominance

While neodymium, dysprosium, and terbium are not modeled directly, the implications could be considered a possibility:

• China controls roughly 80–90% of global rare earth separation and refining.
  As a result, energy shocks, financial volatility, or policy actions affecting China can propagate through global supply chains far faster than new mining or processing capacity can be brought online elsewhere.
• Financialization amplifies exposure.
  As rare earth risk is increasingly embedded in indices, ETFs, and long-term contracts, market stress can magnify supply insecurity even without immediate physical shortages.
• Industrial policy faces a timing mismatch.
  Alternative processing capacity takes years to build; financial contagion moves in days or weeks.

In effect, China’s processing dominance converts macroeconomic volatility into a structural vulnerability for Western industries, according to this Poland-based author.

Limitations and Points of Caution

The study is explicit about its constraints:

• Not rare earth oxides directly.
  Lead and zinc serve as financial proxies, not perfect substitutes for rare earth markets. Note that the rare earth element market is controlled by China, thinly traded outside of China. Although Rare Earth Exchanges now chronicles the emergence of an ex-China market.
• Statistical causality is not political intent.
  Granger causality identifies predictive sequencing, not deliberate policy action.
• China’s role is inferred, not modeled.
  The paper does not directly analyze Chinese export controls or industrial policy.

These limitations warrant caution—but they do not negate the broader warning.

Conclusion: An Early-Warning Signal, Not a Prediction

Orzechowski’s study does not forecast a rare earth crisis. It explains why one could escalate quickly. When strategic materials are tightly coupled to energy and financial markets—and when processing is highly concentrated—volatility becomes systemic. For governments seeking supply-chain resilience, the implication is unmistakable: diversification must extend beyond mining into processing, and it must accelerate.

Rare Earth Exchanges Editorial: Venezuela, Coercive Power, and the Next Supply-Chain Shock

The findings arrive amid intensifying geopolitical pressure on resource-rich states such as Venezuela—pressure often framed around oil but inseparable from broader mineral strategy. Venezuela sits atop not only vast hydrocarbon reserves but also coltan, rare earth-bearing minerals, and strategic metals flowing through opaque supply routes.

History suggests that regime pressure, sanctions, or externally driven leadership change—whether achieved through economic coercion, political isolation, or force—rarely stabilizes commodity supply chains. Instead, such actions often fracture governance, disrupt infrastructure, and accelerate informal or adversarial trade flows—frequently benefiting China, not constraining it.

If the United States or its allies were to pursue escalation aimed at regime change in Venezuela, would the downstream effect likely be greater supply volatility, deeper Chinese leverage, and higher costs for Western manufacturers? Or would relief be within sight?

According to this study at least, financial and energy shocks propagate fastest where processing is monopolized elsewhere.

Strategic minerals policy cannot be built on coercion alone. Without domestic and allied processing capacity, pressure campaigns risk backfiring—turning geopolitical ambition into supply-chain fragility.  Critical mineral and rare earth industrial policy continues to be a pressing issue in North America, Europe, and parts of Asia outside of China.

Citation: Orzechowski, A. (2025). Commodity and Financial Market Linkages: Granger Causality Insights from Rare Earths, Crude Oil, and Equities. Warsaw Forum of Economic Sociology, Vol. 16, No. 32.

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