Research in the International Journal of Global Energy Issues has looked at the volatility of rare earth metals traded on the London Stock Exchange. The work used an advanced statistical model known as gjrGARCH(1,1) to follow and predict market turbulence. It was found to be the best fit for predicting rare earth price volatility and offers important insights into the stability of these crucial resources.
Auguste Mpacko Priso of Paris-Saclay University, France and the Open Knowledge Higher Institute (OKHI), Cameroon, with OKHI colleague explain that the rare earths, are a group of 17 metals* with unique and useful chemical properties. They are essential to high-tech products and industry, particularly electric vehicle batteries and renewable energy infrastructure. They are also used in other electronic components, lasers, glass, magnetic materials, and as components of catalysts for a range of industrial processes. As the global transition to reduced-carbon and even zero-carbon technologies moves forward, there is an urgent need to understand the pricing of rare earth metals, as they are such an important part of the technology we need for that environment friendly future.
The team compared the volatility of rare earth prices with that of other metals and stocks. Volatility, or the degree of price fluctuation, was found to be persistent in rare earths, meaning that prices tend to fluctuate continually over time rather than reaching a stable point quickly. For investors and manufacturers dependent on these metals, such constant volatility poses a substantial economic risk. As such, forecasting the price changes might be used to mitigate that. It might lead to greater stability and allowing investors to work in this area secure in the returns they hope to see.
Other models used in stock price prediction failed to model the volatility of the rare earth metals well, suggesting that this market has distinctive characteristics that affect prices differently from other more familiar commodities. Given that the demand and use of rare earth metals is set to surge, there is a need to understand their price volatility and to take this into account in green investments and development. It is worth noting that there is a major political component in this volatility given that China, and other nations, with vast reserves of rare earth metal ores, do not necessarily share the political views or purpose of the nations demanding these resources.
Mpacko Priso, A. and Doumbia, S. (2024) ‘Price and volatility of rare earths’, Int. J. Global Energy Issues, Vol. 46, No. 5, pp.436–453.
*Rare earth metals: cerium, dysprosium, erbium, europium, gadolinium, holmium, lanthanum (sometimes considered a transition metal), lutetium, neodymium, praseodymium, promethium, samarium, scandium, terbium, thulium, ytterbium, yttrium