Van Eck Global launched the first U.S.-listed fund investing exclusively in producers of strategic metals including so-called rare earths, even as a shipment stoppage that had supported the metals' prices was reportedly lifted.
These metals, used in electronics and military applications, have come under the spotlight recently as China, which produces virtually all of the globe's rare earths, has cut back exports of the materials.
Shares of Market Vectors Rare Earth/Strategic Metals ETF (trading symbol REMX) fell 99 cents, or 5%, to $19.51 in their first day of trade as the New York Times reported that China resumed shipments of strategic minerals to the U.S., Europe and Japan, citing rare-earth industry officials.
Prices of some of the 17 rare-earth materials have risen as much as 10-fold in the past two months alone, as some Japanese companies had reported delays in receiving shipments from China due to more-stringent customs checks by Chinese authorities. Japan had said China was using the unofficial ban on exports to the nation as a bargaining chip in some territorial disputes.
The new fund aims to track the performance of companies that have the capacity to derive at least half of their revenue from producing, refining or recycling the metals.
It seeks to replicate the price and yield performance of the Market Vectors Rare Earth/Strategic Metals Index. Companies in the index include Australia's Iluka Resources Ltd. and Lynas Corp., U.S.-based Molycorp Inc., Canada's Avalon Rare Metals Inc. and Hong Kong-listed China Rare Earth Holdings Ltd.
Strategic metals include manganese, titanium and tungsten. Rare-earth metals are a subset of this category and include neodymium, used to make lightweight magnets, and cerium, used in LCD polishing powders. They have more specialized uses and are often more difficult to extract in economical quantities than base metals like copper, tin and lead.
The Van Eck fund joins a growing number of ETFs seeking to capitalize on the boom in commodities in recent years. The most popular have been physically backed versions that track gold. Physical base metals ETFs have also recently been announced. ETFs that track indexes have also proliferated, including in more-obscure metals, like the Global X Lithium ETF.
"We believe REMX offers investors balanced exposure to the sector first by including strategic metals as well as rare earths and second by including processors and recyclers, not just mining companies," Jan van Eck, a principal with Van Eck Global, said in a statement accompanying the release of the fund.
As of Oct. 13, Australia had the largest weighting in the index, with 23.9%, followed by Canada with 19.81%, the U.S. with 18.77% and China with 14.84%. Even though China produces 97% of the world's rare earths, the index is limited to equities available to foreign investors.
In July, Beijing announced a 72% cut in its rare earths export quota for the second half of the year to 7,976 metric tons, from 28,417 tons during the same period last year.
Germany has been the most publicly vocal critic of China's actions within the European Union and says it plans to raise the issue with the World Trade Organization as well as at the forthcoming G-20 meeting in Seoul next month.
China denies any wrongdoing.