China ended its export quota policy for rare-earth minerals, potentially raising global supply of the metals and weighing on rare earths sector-related exchange traded funds.
The Market Vectors Rare Earth/Strategic Metals ETF (NYSEArca: REMX), which tracks the performance of companies that mine, refine and manufacture rare or strategic metals, dipped 1.7% Monday. REMX has declined 28.3% over the past year.
After losing a dispute in the World Trade Organization, China scrapped its quota system that restricted the exports of rare earth metals, reports Chuin-Wei Yap for the Wall Street Journal.
The U.S., the European Union and Japan have complained that China was deliberately cutting back exports to inflate prices and the quota was designed to develop an unfair advantage for domestic producers with cheaper access to raw materials, BBC reports.
“The change is likely because of the pressure from the WTO decision,” Frank Tang, an analyst at investment bank North Square Blue Oak, said in the WSJ article. “China is saying that as a WTO member, it’ll have to abide by WTO rules.”
In 2010, China, the world’s largest producer of rare earths minerals, accounted for as much as 97% of the world’s rare earth supply. The metals are used in many advanced technologies, such as smartphones and wind turbines, among others. Over the same year, China cut back exports as part of a political dispute with Japan, pushing up prices on rare earths by 40% from the preceding year and raising concern over supply. [Supply Risk No Longer Supporting Rare Earth ETF]