First rare earth ETF begins trading today in New York

The first U.S. exchange-traded fund (ETF) investing in companies that produce rare-earth elements and other strategic metals began trading this morning on the NYSE Arca Stock Exchange.

Managed by Van Eck Global, the Market Vectors Rare Earth/Strategic Metals ETF trades under the symbol REMX.

The ETF tracks an index comprising of 24 mining companies including Iluka Resources Ltd., the world’s biggest zircon producer, China Rare Earth Holdings Ltd., a Hong Kong-based manufacturer and wholesaler of rare-earth products; and Titanium Metals Corp. (NYSE: TIE).

Rare-earth prices have recently soared after the world’s dominant supplier China (which provides more than 90 percent of global supplies) reduced cut its second-half export quota.

According to Van Eck, rare earth/strategic metals are industrial metals that are typically mined as by-products or secondary metals in operations focused on precious metals and base metals. Compared to base metals, they have more specialized uses and are often more difficult to extract.

At present, 49 elements in the periodic table are considered rare earth/strategic metals.

Rare earth metals are crucial to many of the world’s most advanced technologies, such as cellular phones, high performance batteries, flat screen televisions, green energy technology, and are critical to the future of hybrid and electric cars, high-tech military applications and superconductors and fiber-optic communication systems.

Writing in the 24/7 Wall St. blog, John Ogg comments that “rare earth oxide and rare earth element companies are by and large still very much niche and emerging companies, many of which have little to no revenues.”

If the Van Eck ETF becomes successful, Ogg adds, “it will have the unfortunate effect of running up stocks to the point that just being in the ETF would allocate too much ownership by an ETF and that in turn creates a phantom valuation premium in the underlying stocks.”

Ogg adds that rare earth elements are not exactly “rare” by definition.

“What is rare about them is that the quantities of locations capable of being mined at cost-effective commercialization are rare,” he said.