The Case For Rare Earth Metal ETFs

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The rare earth metal industry is abuzz with fresh news. We’ve covered a few of these developments over the past couple of days. The big news of the week of course involves the creation of a new rare earth metal ETF from REE Fund that will make investments in over 30 rare earth metal companies from “mine to market.”  In addition, Dacha Capital announced in a press release that it had been accepted as a member of the Minor Metal Trade Association for its role in acquiring physical inventory of rare earth metals. Ordinarily (and when I first heard the news), I cringed at the thought of more financial services products coming into a space traditionally supported by the economics of industrial demand. Do we really need more speculation or financial types buying up physical inventory?

It reminds me of a conference session I ran a couple of weeks ago in which some industrial buyers of stainless steel wanted to know what if anything, industry could do to prevent “the speculators from “messing up metals markets. My response unfortunately was more of a “not much. But one of the most critical issues in rare earth metals markets involves pricing. The last major US rare earth metal producer, Molycorp, closed its doors in 2002 due to low prices from China. In other words, the US market couldn’t stay competitive based on import prices.

But therein lies the value of these ETFs and/or financial firms entering the market. By buying up inventory and taking investments in mining companies, and assuming they (the funds) can attract the capital (which we feel will happen), prices will likely increase. And when prices increase, the mining economics become a whole lot easier. We realize it stinks to be a palladium buyer right now if one isn’t hedged just as it is to be an aluminum buyer watching prices increase as stocks swell. But that lift in prices may provide the US rare earth metal industry with the help it needs to get a couple of these efforts underway, and ensure industrial buyers have more than one sourcing option. If there is anything I have learned since joining the metals industry it is this – though everyone thinks “price is king the reality is “security of supply reigns supreme.

–Lisa Reisman

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