What are rare earth metals?

Rare earth (RE) metals are a set of 17 lustrous silvery-white soft heavy metals, and despite their name, are available aplenty globally in the Earth’s crust. Once they are extracted from mines, REs are taken to separation facilities, wherein they are separated from other minerals. Then, the REs are separated into three core by-products; oxides, metals and magnets.

The by-products are utilised in the manufacturing of a variety of integral components of modern society, from petroleum refining, electric motors, and wind turbines, to portable electronics, microphones and speakers. As nations across the globe continue the shift towards electric vehicles, the importance of REs continues to grow.

China’s role in the global REs supply chain

The Chinese government has placed its supremacy in the RE commercial landscape as a key element in their plan to build the world’s biggest economy, and even declared REs a “strategic resource“. Early on, this entailed China strategically flooding the RE trade market with prices below market value, hence deterring competitors from sustaining their businesses. Pre-covid, this enabled China to be responsible for over 80% of America’s RE imports, as per the U.S. Geological Survey.

China controls close to four-fifths of the global RE refining capacity. Despite China’s near-monopoly status in the refining process of REs, it has faced issues with RE supply needed for domestic manufacturing. China’s demand exceeded its supply of REs consistently over the past five years, which has resulted in China importing additional REs from miners in the US and Myanmar.

Difficulties the United States faces in implementing a domestic supply chain for REs.

In the 1980s, the US Nuclear Regulatory Commission (NRC) and the International Atomic Energy Agency (IAEA) amended their definition of source material, which resulted in some valuable REs being defined as a precursor for nuclear fuel. Hence, REs could not be processed or extracted in the US or other IAEA member states.

China, on the other hand, is not restricted by the IAEA regulations, as it is not a member state to the Agency. Hence, China was able to continue to work towards establishing a domestic supply chain for REs, whilst the United States was constrained.

China’s announcement

The Ministry of Industry and Information Technology of China proposed limiting the production and export of REs, following on from its decision in 2007 to limit production to keep prices high and reduce pollution.

However, this has been criticised as it may lead to China’s rivals accelerating their own RE production plans, and consequently undermine China’s role in this sector.

How can the US respond?

Companies, like Lynas, have won government contracts worth $30 million from the Pentagon to set up RE processing plants in regions such as Texas in the United States to accelerate the domestic supply chain in the US.

However, more than a handful of companies will be needed for the US to successfully build a robust supply chain to compete with China. In light of this, policy decisions such as Joe Biden’s “Buy American” executive order will be key in attaining such goals.

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The expanded cartel announced that it will gradually introduce up to 2 million barrels of oil, starting from May 2021, till July 2021. More specifically, Opec+ will add back 350,000 barrels per day in May, 350,000 in June, and 400,000 in July.

Strategy Shift

In the initial days of the pandemic, the global energy group cautiously reduced oil output to stabilise the commodity’s market. Following this, a gradual return to regular production rates was seen in December of 2020, with Opec+ agreeing that it would increase output by up to 500,000 barrels per day each month; however, after initially increasing production in January 2021, it held back from further increases as global energy demand was difficult to predict due to the uncertain pandemic recovery.

Saudi Arabia, which controls about one-third of Opec’s total oil reserves, plays a leading role in the organization. The nation’s energy minister, Abdulaziz bin Salman, warned that the change in strategy was premature as the pandemic has not stabilised, as evidenced by third waves across Europe, followed by governmental lockdown measures in countries like France.

Despite this, Opec+ has speculated that the pandemic recovery is recovering, in particular, due to the successful vaccine rollouts in various jurisdictions. Nevertheless, Abdulaziz bin Salman conceded and suggested the new oil output strategy was merely a cautious and conservative measure.

As a result of the announcements, crude oil was trading at $61.28 per barrel, a 3.6% increase. Simultaneously, Brent crude rose 3.1% per barrel to $64.66.

The context

Some factors that influenced oil demand, and possibly the decision by Opec+ are the spikes in oil prices seen following the attack on Saudi Arabia’s oil facilities by the Houthi rebels in Yemen. Additionally, the recent Suez Canal crisis caused by Ever Given, caused crude oil prices to rally, though this quickly fell once the container ship was freed.

Moreover, there is some speculation that economic stimulus measures from governments in nations like the United States and Britain, in conjunction with successful vaccine campaigns, may have provided an optimistic outlook for fuel demand.

A difficult balancing act

Opec+ has a difficult objective; the group must speculate on the pandemic’s outcome to ensure a recovery of oil prices, a commodity that is nearly 25% lower in value year-to-date. It is imperative Opec+ proceeds with caution, and essential the group “gets it right”; if production levels are raised and demand does not rise with it, oil prices will fall drastically in an already grim financial year for the commodity.

Conversely, if production levels are lowered, oil prices will surge and act as an additional hurdle for governments in a financially demanding period. An example is an effect this may have on India; as a nation that imports close to 85% of its oil, a dollar increase in oil prices permanently would add $1.4 billion to India’s government spending.

Opec+ is indeed caught between a rock and a hard place. With major global leaders like the United States placing pressure on the group to ensure energy costs do not skyrocket in the forthcoming months, and clarity of the pandemic’s recovery trajectory getting blurrier every day, the group is faced with a task that is equal parts difficult and vital.

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Why is Bitcoin bad for the environment?

A defining feature of Bitcoin is the fact that it isn’t controlled by any single authority, such as a central bank, but rather a complex global network of computers. Essentially, Bitcoin “miners” utilise sophisticated computers and solve complex math puzzles to make transactions go through.

However, Bitcoin mining was not always this complicated. On the contrary, in 2011, you would only need an average laptop to mine it. Fast forward to today, you would need warehouses stocked with specialised hardware systems called Application Specific Integrated Circuits (ASIC). A majority of the mining cost arises from the energy required to ensure the smooth operation of ASICs.

The first environmental hurdle arises in light of these ASICs. To ensure they are utilising the most effective technology, miners frequently upgrade their mining hardware. ASICs are not easily repurposable, meaning outdated hardware is made redundant, and these out-of-use units account for 11,500 tonnes of hazardous electronic waste each year.

More worryingly, the actual energy utilised by the ASICs while they are still in use is at staggering levels. The University of Cambridge Centre for Alternative Finance (CCAF) published studies that suggest Bitcoin’s mining efforts’ energy consumption is an estimated 130 terawatt-hours. For perspective, the entire nation of Argentina utilises roughly similar levels of energy, and the UK’s electricity consumption is a little over 300 TWh a year. Additionally, Bitcoin mining generates 37 million tonnes of CO2 each year.

Governmental responses to the environmental impact of Bitcoin mining.

Some governments have started to take action, such as the government of China. China’s Inner Mongolia region contributes significantly to global cryptocurrency mining, in part due to the affordable energy costs in the region. However, in light of China’s development and reform commission’s plans to reduce energy consumption, existing cryptocurrency mining projects in the Inner Mongolia region are set to shut in April 2021.

Counter Arguments

Advocates of cryptocurrency suggest energy usage is not inherently bad as energy is used for many modern activities. They suggest that critics of Bitcoin’s environmental impact are less focused on the net energy utilised for its mining, and more concerned about the purpose of this mining. “What we have here is people trying to decide what is or is not a good use of energy,” said Meltem Demirors of CoinShares. However, it may be difficult to argue for the necessity of Bitcoin, as it is not a widespread Fiat currency alternative, and functions more like a digital form of gold, with no inherent asset underpinning its value.

Another counter-argument proposed by advocates of Bitcoin is the fact that energy consumption crises are inevitable with the growth of online servers. As servers grow larger and more complex, energy expenditure will rise proportionally. This is a fair argument and deliberate steps must be taken to ensure digital evolutions are in line with environmental objectives. Currently, only one-fifth of the electricity used in the world’s data centres comes from renewable sources.

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Initially, Egyptian officials were optimistic about the handling of this crisis, with some speculating that the matter would be resolved in days. However, as the length of the vessel Ever Given, originating in Taiwan, has been said to be roughly the height of the Empire State Building at nearly 200 feet wide and 1,300 feet long, its removal is an incredibly difficult task. As a result, Smit Salvage, a group involved in the crisis management efforts, has stated that it may take “weeks” for the Suez Canal to continue routine operations.

The one glimmer of hope for companies utilizing the sea route was the upgrade in 2015 to the Suez Canal, when a newer channel was built alongside the one originally opened in 1869. However, this optimism was short-lived as the new channel was significantly smaller, precluding bigger vessels from utilizing it.

Market reactions

Cargo shipping was already under strain following the pandemic, largely due to the difficulties in refreshing crews or servicing vessels, and this crisis has exacerbated these difficulties; cargo companies are now forced to undertake expensive alternatives, such as air freight or moving across the southern tip of Africa.

Initially, due to the novel nature of this crisis, markets reacted poorly, which led to the price of Brent crude rising almost 6 percent to $64 a barrel as of Wednesday the 24th of March. This was largely due to the imminent supply shortage of the commodity, as up to 13 million barrels of Brent crude shipments were blocked on the same afternoon of the crisis. By Thursday, the commodity nearly experienced a correction as the cost of Brent crude fell to $61 a barrel.

The knock-on effects of this crisis are more alarming than the initial market reaction. Firstly, a bottleneck effect may materialize in European ports, as delayed vessels may arrive at ports at the same time as vessels scheduled to arrive from different locations, thus causing a detrimental domino effect. Moreover, severe disruption to global supply chains may occur as goods transported around Africa may delay deliveries by up to 10 days. This logistical disruption has further negative connotations, such as inflation-linked rises in the price of goods.

What to look out for

It is likely the days following the resolution of this crisis will be littered with insurance claims. Although UK P&I, the insurance group covering Ever Given, has refused to comment on potential claims, insurance experts predict a wave of claims is forthcoming.

This event is also likely to trigger a global discussion of prevention of circumstances such as this one, as the size of cargo vessels have expanded significantly over the years, whilst the width of their relatively narrower routes have remained largely unchanged, barring the aforementioned expansion to the Suez Canal. There may be efforts to mitigate against blockages such as this one in key shipping “chokepoints“

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What does it include?

The stimulus bill will allow the U.S Treasury Department to send American citizens earning $75,000 or less annually payment of $1,400. Additionally, the bill will allow states to process unemployment benefit extensions until September, which was previously due to expire on March 14th.

Commercial impact

Nationally, the bill is projected to improve consumer spending. More importantly, there will be international implications in light of the stimulus package. A thriving US economy may result in a spillover of economic demand in other parts of the world, especially trading partners of the US, such as Mexico and Canada.

Further, for nations that borrow in their currency, such as advanced economies, the faster growth will result in increased potential exports, which generally boosts investments.

The Organisation for Economic Co-operation and Development (OECD) reported that the stimulus package will boost the global economic recovery. In light of the bill, as well as efficient vaccine roll-outs in various countries, the OECD has suggested a stronger economic recovery may be afoot. The stimulus will add close to 1 percentage point to global economic growth in 2021, resulting in a total of a 5.6% expansion of the global economy, an improvement from the previously forecasted 4.2%.

Drawbacks?

Although economic demand is favorable, too much too fast is not good. This could lead to capacity constraints, which would lead to higher inflation, causing higher interest rates globally.

This would disproportionately and adversely affect poorer, less advanced countries as they typically do not borrow in their currency. One possible consequence of higher interest rates is that some governments may struggle to service debt.

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