Climate Change & Copper Mining: What’s Behind the REMX's Strong Performance?

Countries and businesses striving to meet looming net-zero carbon emission targets are powering the growth of the VanEck Vectors Rare Earth/Strategic Metals ETF [REMX].

The VanEck Vectors Rare Earth/Strategic Metals ETF launched in 2010 and seeks to replicate the performance of the MVIS Global Rare Earth/Strategic Metals Index, which tracks companies involved in producing, refining, and recycling of rare earth and strategic metals and minerals. Over the past 12 months, it has surged 156.7%.

These metals, which include copper, platinum, palladium and lithium, are fundamental to a plethora of fast-growing products and sectors that will help in the transition to a net-zero future. From electric vehicle batteries to wind turbines, nations and corporates are investing in these technologies as they try to hit the Paris Agreement targets and avert climate disaster.

They are also used in a number of everyday items, such as mobile phones and computers.

Demand for heavy metals

Demand for precious metals and minerals is strong and may be about to get stronger. China has a huge appetite for these metals to power its industries and meet growing demand for consumer products from a richer population.

President Biden’s $600bn infrastructure stimulus plans in new bridges, roads and electric vehicle charging networks, meanwhile, will also likely boost US demand.

“Copper is one of the clear beneficiaries of the bill,” says Hamad Ebrahim, head of research at NTree International adding that refined copper is expected to grow at 2% per year for the next five years. Electrification spending will further boost demand for nickel and copper. “We can make some simplified assumptions to estimate the expected additional demand for nickel,” Ebrahim said.

Eurasia Mining [EUA] expects rising prices in platinum and palladium as "Demand is positive from existing markets in PGM, both industrial and precious metal uses, and from new and emerging markets notably fuel cells and the hydrogen economy.”

In short supply

The supply of these metals remains weak as a result of the pandemic and under-investment in mines in recent years. For shares like REMX that may be good, because it means prices will rise some more.

Metal prices have rocketed this year with during August, the lithium carbonate CIF Asia price reaching a 27-month high of $12,250 per tonne, as reported by S&P Global. It was buoyed by strong Chinese battery production and plug-in electric vehicle sales in August and weak seaborne supply.

There are challenges ahead, such as the uncertainty around industrial demand as the pandemic continues. There have also been further concerns over supply with China threatening to limit exports of rare earth minerals.

That’s important because China controls more than 85% of the world’s global output in processed rare earth metals.

REMX’s performance

The REMX is still expected to keep shining. According to Yahoo Finance, the REMX has recorded a year-to-date total daily return of around 58.6%, up from 20.01% back in May. This compares with the Global X Lithium & Battery Tech ETF which has a year-to-date total daily return, according to Yahoo Finance, of around 32%.

The VanEck Vectors Rare Earth/Strategic Metals ETF has 21 holdings, with Zhejiang Huayou Cobalt [603799] having the biggest weighting at 7.51%, Ganfeng Lithium [1772] with 6.88% and China Northern Rare Earth Group [600111] with 6.74%. Other holdings include Lynas Rare Earths [LYC] with a 5.38% weighting and Lithium Americas [LAC] with 4.87%.

“REEs and strategic metals have been increasingly used in high tech applications linked to defence or the transition to a low carbon world, among others. These uses have pushed demand for many of these metals higher in recent years and current trends indicate that demand may only increase,” said Brandon Rakszawski, ETF senior product manager at VanEck in ETF Trends.

That publication neatly summed up REMX’s positioning at present: “The right place and the right time,” it declared.