While supply chain issues and other pandemic-related factors continue to push raw material prices higher, the rare earth metals that power technology continues to be a tightly held area of the commodities market in the eye of a nearly perfect bullish story. 

I last wrote about the rare earth metals on Barchart on March 5, 2021, and September 2. In March, I described how rare earth metals are “the commodities of today and tomorrow.” In September, I highlighted the price appreciation of an ETF product, one of the few ways to participate in the rare earth metals markets. I further explained how the Chinese were likely to extract even a larger share of the world’s rare earth metals from Afghanistan after the US departure noting, “Beijing has said the Chinese government is ready for ‘friendly cooperation with Afghanistan’” and the ruling Taliban. 

Chinese control is an issue for the world

China continues to control the lion’s share of the world’s rare earth metals supplies through domestic production and investments worldwide. 

China is currently working to create a rare earths giant by restructuring three rare earth metals producers to create a state-owned company that will control nearly 70% of the domestic production quota of the metals. China will extend its control from production to the entire supply chain, including exports. Chinese President Xi has said that “rare earths are an important strategic resource.” 

Meanwhile, technology companies worldwide depend on metals, a national security imperative for the US and other countries. The US has begun to create an alternative supply chain for rare earths, joining forces with Australia. The US Pentagon recently said that the US needs to boost its rare earth supply chain. Aside from technological applications, rare earths are critical for defense and military hardware. 

Global inflation and supply chain issues push the REMX higher

Inflationary pressures continue to plague the US and global economies. Aside from pandemic-related supply chain issues, monetary and fiscal stimulus have flooded the financial system with liquidity via historically low interest rates, and stimulus has expanded deficits. Growing debt and increasing money supply have created the worst US inflation levels in three decades. The latest CPI data showed a 6.2% increase in October. 

The prices of all commodities have been trending higher, and rare earth metals are no exception. Chinese control and inflation have caused rare earth metals prices to almost double in 2021. 

The VanEck Rare Earth Strategic Metals ETF (REMX) is nearly five times higher than the March 2020 low. 

The demand for these metals is growing

Rare earth metals are critical electronics components and are vital for many green technologies. As the world moves to address climate change, the shift from fossil fuels to alternative and renewable forms of energy increases the demand for metals. Rare earth metals are magnets for wind power turbines and the required ingredients for producing the batteries in hybrid electric vehicles. For example, it takes up to 600 kilograms of rare earth metals to operate one wind turbine. 

Annual demand for rare earth metals doubled to 125,000 tons in fifteen years, with demand forecast to reach 315,000 tons by 2030. Green energy and electronics technology are driving the growing demand. 

REMX is in a bullish trend 

The path of least resistance of the VanEck Rare Earth Strategic Metals ETF (REMX) remains higher. 

As the chart highlights, REMX moved from a low of $23.91 in March 2020 to the most recent high at $123.38 per share on November 8. 

REMX is a diversified ETF product that holds shares in some of the world’s producers. REMX does not invest directly in rare earth metals but in the companies that produce them. Some of the top holdings of the ETF include Liontown Resources Ltd (LTR.A), Lithium Americas Corporation (LAC), and others. At the $117.59per share level, REMX had over $1.107 billion in assets under management and trades an average of over 220,000 shares each day. The ETF charges a 0.59% management fee. As prices continue to move higher, mining companies often provide leverage to the commodity prices and tend to outperform price appreciation on a percentage basis. 

Lots of room to reach the 2011 high

In January 2018, REMX reached a high of $98.91 per share. In July 2021, the ETF broke out above that level and followed through on the upside. 

The long-term chart shows the all-time high came in 2011 during the commodity rally that followed the 2008 global financial crisis. REMX reached $346.92 per share in April 2011. 

REMX has lots of upside room given the growing demand and tightly controlled supplies in the rare earth metals arena. While the ETF’s price has moved nearly five times higher since the March 2020 low, the price history shows far more upside potential in the product that reflects some of the most critical commodities for the future.