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In the first five months of this year, exports of rare-earth metals from China dropped more than 8 percent from a year earlier, indicating that the economic powerhouse is tightening control and global market supply which could provide positive price support to the Market Vectors Rare Earth/Strategic Metals ETF (NYSEARCA:REMX).

Although rare earth metals can be found in parts of the world, as of today, China has a monopoly on them accounting for nearly 95 percent of global production. Therefore, when China reduces exports of the metals, a global supply constraint could emerge.

As for global demand for rare earth metals, it is on the rise and worldwide demand is expected to exceed supply by as much as 40,000 tonnes annually if current production facilities remain intact and other nations don’t ramp up production. Demand for rare earth metals has primarily been supported by the need and desire for high and improved technology through their uses in super conductors, fiber-optic cables and cellular phones. Additionally, rare earths have useful applications in the energy sector as that they are used in magnets for wind energy turbines and in the batteries of hybrid and electric vehicles (as the desire to seek alternative clean energy sources continues to prevail, demand for rare earths will likely follow). A third force that has been supporting demand of rare earth metals is the military. These metals are often used in weaponry and are found in GPS systems.

At the end of the day, demand for rare earth metals is not likely to dissipate anytime soon, in fact it is expected to grow, and China has started to tighten market supply of these metals, which will likely result in positive price support in rare earths.

As mentioned above, a diversified approach to gaining access to rare earths is through the Market Vectors Rare Earth/Strategic Metals ETF (REMX). REMX seeks to track the overall performance of a basket of publicly traded companies primarily engaged in a variety of activities that are related to the mining, refining and manufacturing of rare earth/strategic metals. Some of its holdings include Australian miners Iluka Resources and Lynas Corp. LTD., US-based Thompson Creek Metals Co. (NYSE:TC) and Molycorp (NYSE:MCP) and China-based China Molybdenum Co. LTD and China Rare Earth Holdings LTD.

Disclosure: No positions

Source: Tight Supply Should Boost Rare Earth Metals ETF