Geopolitics has been a key risk factor in economic and financial trends this year, including companies engaged in mining and processing of rare earth elements. As tensions rise between the US and China on access to these critical commodities, creating fears of supply chain shocks, stocks in the industry are roaring higher, based on a set of ETFs through Monday’s’ close (Oct. 13).

The VanEck Rare Earth and Strategic Metals ETF (REMX) has more than doubled this year, rising nearly 104% year to date. A competing fund – Sprott Critical Materials ETF (SETM) – has rallied more than 94%. By comparison, the Invesco DB Base Metals Fund (DBB), which targets copper, aluminum and zinc, is up just 12.1% this year.
 

Nearly all of the gains in rare earth-related firms has unfolded since July. The rally accelerated after President Trump last week threatened to impose new 100% tariffs on China, which followed Beijing’s announced plans for strict export controls on critical minerals.

China is the world’s leading source of rare earth elementss by far, giving the country enormous leverage over global supplies. The country produces nearly 70% of the world’s rare earth output and processes almost 90%, according to USGS.gov.
 

Despite the label, so-called rare earth commodities aren’t rare. However, locating supplies and mining these elements is difficult and expensive. The critical factor is that these supplies are critical for several industries, including technology, automative and defense. The US and other countries have rare earths supplies and deposits, but the capabilities and resources pale next to China.  

Strengthening the bullish aura surrounding companies in the rare earth industry: JPMorgan on Monday announced that it’s planning a $1.5 trillion investment effort to bolster sectors critical to the US economy. “It has become painfully clear that the United States has allowed itself to become too reliant on unreliable sources of critical minerals, products and manufacturing, all of which are essential for our national security,” Chairman and CEO Jamie Dimon said in a news release.

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