Most commodity producers have had a pretty forgettable start
to 2013. Weakness in China, a strong dollar, and sluggish
industrial production figures across the globe have combined to
send many mineral and natural resource prices to fresh lows in
the past few weeks.
While most investors have been focused in on producers of
gold, silver, and industrial metals, we have also seen some wild
trading in the often-overlooked rare earth metal market. This
corner of the mining world, which focuses on the lanthanides on
the periodic table (along with scandium and yttrium), is vital
for a number of industrial uses ranging from hybrid cars and high
tech consumer gadgets, to aerospace components, lasers, and
Yet despite the crucial nature of many of the commodities on
this list, the prices for rare earths have been quite sluggish.
rare earth metal price indexes
have fallen sharply in the past few months, and almost 50% over
the past year, suggesting that this volatile space has been a big
loser from the slowdown in key areas and a poor commodity
Turnaround at hand?
While there has been some rough trading in the space,
investors have seen a bit of a reversal in the past few days
thanks to a key earnings report from
. This important miner handily beat expectations for its latest
earnings release, posting a loss of 15 cents a share, well above
estimates which called for a 46 cent per share loss for the firm
What Happened to the Rare Earth Metal ETF?
In addition to this beat, investors also keyed in on some
upbeat statements from MCP's management which suggested that
better days could be ahead for not only the company, but the rare
earth metal industry at large. Molycorp President and
CEO stated that
'customers appear to be working down inventories that were built
up in 2011 and 2012 and we are starting to return to more normal
This statement along with the earnings report helped to push
MCP shares up by double digits in the immediate following
session, and it had a similar impact on other names in the
industry as well. So perhaps investors might finally be seeing
the bottom in the rare earth space, at least for the
If you want a broader play on the industry, it could be worth
it to take a look at the only ETF targeting the market, the
Market Vectors Rare Earth/Strategic Metals ETF (
. This fund doesn't invest in the rare earth metals themselves
but instead focuses on key miners of these strategic products,
giving investors exposure to the industry via that route (see
Time to Buy this Precious Metal ETF?
Through the first four months of the year, REMX was having a
pretty rough time on solid levels of volume. The ETF lost about a
quarter of its value in the timeframe, marking a pretty
horrendous stretch for a fund that saw relatively decent trading
through much of 2012.
In the past few days though, the fund has added significantly
boosted by a stronger industrial outlook, and of course MCP's
rosy forecast. Now, REMX is up over 5% in the past five days, and
this includes a modest loss in the Monday trading session.
Why an ETF for Rare Earth Metals?
Some investors might think that a play on MCP alone is the way
to target the industry, especially given its beat for the most
recent quarter. However, this fails to take into account the
longer term trends, as MCP has greatly underperformed REMX over
the past one year period.
Given this and the incredibly rocky trading in the space, an
ETF approach could be a better idea to at least limit the
significant risks in the industry. The fund holds about two dozen
companies from around the globe and it doesn't put more than 9%
in any single company, so firm specific risks are pretty much
diversified away (also see
Rare Earth Metal ETF Jumps on WTO Tensions
Furthermore, the country profile for REMX suggests that there
is great diversity in the holdings and this cannot be achieved by
average investor on their own. For example, just about a quarter
of the fund is in North American companies, with big chunks going
to Australian, Japanese, and Chinese firms instead.
While this approach may help to reduce some risks, it is worth
noting that the product is likely to see significant volatility
as well. Large caps account for just 6% of assets, while small
cap firms make up nearly 80%, so big swings should be expected
Why I Hate Volatility ETFs and Why You Should
Still, for investors who believe that the rare earth metal
space has bottomed, and especially after the recent MCP
leadership comments, REMX is an excellent choice. The fund is
likely to experience big swings no matter what happens in the
future though, so make sure you have a strong stomach before
betting on this volatile market in the summer months.
However, given the beaten down nature of the segment, many
names could be presenting themselves as a decent value at this
time. We will have to see if the rest of the space can continue
the trend though, and get rare earth metals back on track heading
into what looks to be a crucial stretch for the industry as it
struggles to return to prominence this year.
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MOLYCORP INC (MCP): Free Stock Analysis
MKT VEC-RAR ERT (REMX): ETF Research Reports
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