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An exchange traded fund that tracks the prices of rare earth metals plunged Tuesday as Molycorp Inc. (NYSE:MCP) shares plummeted more than 20% on news of a downgrade amid falling demand for rare earth metals.

The Market Vectors Rare Earth/Strategic Metals ETF (NYSEARCA:REMX) lost nearly 5%.

Molycorp shares plunged about 22% on Tuesday.

JP Morgan Chase lowered lowered its outlook on Molycorp to neutral from overweight and cut its 2012 year-end price projection to $66 from $105 due to a “lack of clarity” on the effects of speculative purchases on rare earth prices, reports Ian Thomson for MarketWatch.

The firm also noted that the Industrial Mineral Company of Australia downgraded its estimate on rare earth demand.

Rare earth metals are used in high-tech electronics, defense and other applications. Prices have jumped over the last two years as China closed illegal production and diminished its export quotas – China accounts for 95% of the world’s rare-earth supply.

“We continue to believe that still elevated rare earth prices should support Molycorp’s stock and push it higher,” JP Morgan stated.

Market Vectors Rare Earth/Strategic Metals ETF (REMX)

click to enlarge

Max Chen contributed to this article.

Disclosure: None

Source: Rare Earth ETF Drops On Lower Demand As Molycorp Plunges Over 20%