Technology metals – also referred to as tech metals – are a relatively new investment option that, until recently, have only been available through exchange traded funds (ETFs). With the proliferation of the mobile electronics market over the past thirty years, demand for tech metals has increased exponentially. Even with the increased demand, many investors still have questions about this unique, emerging sector. Let’s take a moment and demystify the tech metals market.
The term ‘tech metals’ is used in different ways by different people but, for our intents and purposes, we’ll define it as metals used primarily in industrial (read technical) applications. These industrial metals are divided into three categories: Precious Metals, Rare Earths and Specialty Metals.
Precious metals include gold, silver, platinum, palladium, rhodium, ruthenium, iridium and osmium. Rare earth elements include cerium, europium, neodymium, samarium, and thirteen others. Specialty metals are different from precious metals and rare earths in the fact that many of them don’t occur in nature in their pure form. This category of tech metals includes gallium, indium, germanium, and thallium.
We call the tech metals an emerging market because, even though many of these metals have been in use since the middle part of the twentieth century – compare that to gold and silver which have been sought after for millennia – they didn’t really hit their stride until closer to the twenty-first century. The intense manufacture of electronics during World War II, and the cold war that followed, found uses for many of these previously unused metals but it wasn’t until the late twentieth century that the use of these metals in the manufacture of mobile electronics really got going.
The twenty-first century has ushered in a sea change of profound proportions from which there is no turning back: miniaturized electronics, large scale televisions, electronic data processing, and personal communications have become a way of life and our dependence on them – for good or bad – has become set in stone.
This brings us to the current state of the tech metals market. Unfortunately, information about the market can be contradictory, but if we take a step back and look at the big picture, we can get a better perspective of the sector.
Demand for tech metals from the automotive industry continues to rise. Eighty percent of all platinum group metals – as well as a large percentage of specialty metals and rare earths – are used in electronic components, LEDs, and batteries. The path the automotive industry chooses to tread will largely dictate which metals will see higher use. If electric-powered vehicles become the norm, battery materials will become the metal of the moment. If hydrogen-powered vehicles take over, the platinum metals will be in the spotlight. But as one expert asked, “Does it have to be one or the other?” In other words, does the demand for one group of tech metals necessarily exclude the others? The obvious answer is of course not.
If the automotive industry is first in the tech metals market, the mobile phone/tablet industry is a close (read very close) second. The electronics market in general relies heavily on the application of tech metals to everything from battery production to screen production to the layout of all internal components. And with the number of phones and tablets exceeding the number of users – and still increasing – the electronics industry will continue to influence the tech metals market for some time to come.
When we identify the major players in the tech metals market, it becomes obvious that there is a very real potential for the market to explode as innovation and demand drive the sector forward (and upward).
This potential is tempered though when we examine the physical distribution of the existing deposits of tech metals. China currently sits on top of the majority of world reserves of the technology metals. In conjunction, China produced 97% of the world rare earth elements despite having only 36% of the reserves. And while 36% may not seem like a lot, it’s a veritable gold mine (no pun intended) when compared to the next two highest reserve percentages: 19% located in western Russia and 13% located in the U.S. Is it really any wonder that most of the major electronics companies (i.e., Microsoft, Apple, Sony) manufacture in China?
When this and other data is analyzed and extrapolated forward we get a rosy picture of the tech metals market…at least for investors. Increased reliance on the tech metals for electronic manufacturing – and the increased demand from consumers for the resultant technology – has strained supply of these ‘rare’ metals. Concern is mounting that the world may soon face a shortage of the tech metals – rare earths in particular.
China has done little to mitigate these concerns; going so far as to exacerbate the situation by reducing export quotas. The result – until new sources are found and mined – will undoubtedly be an increase in the price of both the metals themselves and the products in which they are used.
The choice whether to get involved in the tech metals market is entirely up to you. Whichever direction you’re leaning, research is always advisable and even necessary. Ask yourself, “Why invest in the technology metals?” “What are the critical factors influencing the market right now?” “What is the best investment vehicle and which metals are the easiest to invest in?” Answering these questions can provide a wealth of relevant information. Keep in mind 1) who the major players in the game are and 2) the fact that technology demands are not going away anytime soon. Consider the availability of the tech metals and who holds “the key to the kingdom”, so to speak. Regardless of your decision, the future looks bright for the tech metals industry.