China’s Export Ban on Rare Metals Could Boost REMX

China’s Export Ban on Rare Metals Could Boost REMX

Chinese export restrictions could ignite a bullish fire under REMX, with outflows turning to inflows.

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Reviewed by: Lisa Barr
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Edited by: Sean Allocca

Tensions between the U.S. and China could support significant gains in rare earth metals prices, and that could be a good sign for ETFs tracking the commodities, like the VanEck Rare Earth/Strategic Metals (REMX).

Germanium ores are rare, a byproduct of zinc output and coal fly ash. China produces around 60% of the world’s germanium. Another metal, gallium, comes from processing bauxite, the primary ingredient in aluminum production. China produces over 80% of the world’s gallium.

Germanium and gallium have many high tech applications, from fiber optic cables and 5G telecommunications masts to military-grade thermal imaging, lasers, LEDs, satellite solar panels and rare-earth magnets in electric vehicle engines. Many semiconductors require germanium and gallium.

The U.S. has a strategic germanium stockpile but no gallium inventories. The recent moves by the Chinese government will cause illiquid germanium and gallium prices to rise and availability to decline. Meanwhile, Chinese control of rare earth metals could make the 17 rare earth metals, including the 15 lanthanides on the periodic table, and scandium and yttrium prices soar as availabilities dry up.

Why China Could Matter to REMX 

On July 3, Chinese officials announced export restrictions on gallium and germanium for what they called national security reasons. The move was significant but not unexpected, given the metal’s military technology applications. The restrictions could be the first step for China as relations with the U.S. continue to deteriorate. 

China’s population and growth over the past decades have made it the world’s leading commodity commodities consumer. China has spent years securing raw material supplies worldwide through strategic joint ventures and investments in commodity-producing countries.

China’s Rare Earth Metals and REMX 

China has a dominant position in worldwide rare earth metals production and processing. 

Source: Statista 

 

The chart above illustrates China’s 70% market share of rare earth metals production in 2022. Rare earth metals are illiquid commodities that do not trade on the world’s commodity futures exchanges. However, they are the raw materials that support many current and emerging technologies.

REMX Could Explode if Prices Soar 

If China’s germanium and gallium export restrictions are the first step in cutting off the U.S. and its allies from critical commodities under its control, rare earth metals could be next.

The U.S. administration issued a February 2022 fact sheet on “Securing a Made in America Supply Chain for Critical Minerals.” The U.S. and Europe are scrambling to accumulate these commodities through domestic production and strategic purchases. However, Chinese export restrictions impacting rare earth metals could cause prices to skyrocket and availabilities to decline.

REMX Benefits if China Extends Restrictions 

REMX holds companies producing and processing rare earth and other strategic metals:

 

Source: etf.com 

 

The chart above shows that 27.11% of the $641.4 million assets under management are invested in Chinese- and Hong Kong-Chinese-controlled companies. However, REMX has over 43% invested in Australian producers with investments in U.S., Canadian and European producers and processors.

 

Source: etf.com 

 

REMX has risen 13% from $76.43 on April 25 to $86.43 per share on July 19. REMX closed 2022 at $76.16 per share and has appreciated in 2023.

REMX is a liquid product, with an average of 73,485 shares changing hands daily, and has a 0.54% expense ratio.

 The etf.com Fund Flows Tool shows an outflow of $88.23 million in 2023, a decline of around 13% this year. China’s export restrictions could ignite a bullish fire under REMX, with outflows turning to inflows over the coming weeks and months.

If and when China announces export restrictions on rare earth metals, REMX could spike higher as investors realize the metals prices will soar and availabilities could become scarce.

Andrew Hecht is a Nevada-based writer and analyst covering stocks, bonds, foreign exchange, cryptocurrency and raw material markets. He has over four decades of experience in markets across all asset classes, concentrating on commodity markets. Hecht was a senior trader at Salomon Brothers in the 1980s and 1990s, running sales and trading businesses. In 2013, McGraw Hill published his book, “How to Make Money in Commodities."