The rare earth metals ETF has been a standout this year, and strengthening fundamentals may continue to support this sector pick.

The VanEck Vectors Rare Earth/Strategic Metals ETF (NYSEArca: REMX), which is comprised of global companies involved in producing refining and recycling rare earth and strategic metals and minerals, rallied 59.7% year-to-date. Rare earth metals miners may continue find support from both the supply and demand side ahead.

China, the largest single country supplier of the global rare earths market, has taken efforts to cut down illegal mining have pressured the supply chain and bolstered prices, according to Metal Miner.

Furthermore, in an attempt to enforce new environmental regulations, the Chinese government has suspended operations at substandard rare-earth smelters this year, reports Nikkei Asian Review.

“The environmental crackdowns this year appear to have been stricter than before, although crackdowns have been going on for years. Also, control over illegal mining intensified, and these factors pushed up prices of rare earths,” Fu Liyao, an analyst at chinaiol.com, told Global Times. “Other factors include the State-led buying of rare earths for additions to reserves and the consolidation of major rare-earth companies.

“Illegal mining volume has basically disappeared, compared with the previous annual level of 30,000 tons to 40,000 tons. All these factors curtailed supplies in the market and drove up prices,” Fu said.

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