Down 90%, Rare Earth Stocks Await China's Next Move

Chart of the Week #34

Rare earth elements (REE) are essential for modern life and, crucially for those in power, vital to the U.S. military complex.

Like I told you earlier this week, China appears to be laying the groundwork to ban rare earths exports to the U.S. From probing their rare earths industry about potential damage to the U.S. military, to banning rare earth magnet technology exports and demanding detailed tracking of rare earth shipments in Western supply chains – all signs point to something brewing. Especially given this month's ban on gallium, germanium, and antimony exports.

If this happens, we could see a rare earths bull market for the record books—potentially eclipsing the 2010-2011 boom.

Granted, this may sound speculative. But if history is any guide—and given that China already did this once in 2010—there’s a good chance it could happen again.

The point is, this setup spells an opportunity for savvy investors ready to get ahead of the potential rush into REEs. And, interestingly, rare earth stock prices are near their cycle lows right now. That’s what this week’s chart below shows. Take a look.

What should jump out at you from the graph above—showing the VanEck Rare Earth/Strategic Metals ETF (REMX), a go-to proxy for the rare earths sector—is how REE stocks have been sliding over the past three years. In fact, they’ve retraced about 70% from their 2022 highs—a surge that, in part, had its origins in Trump’s anti-China policies during his first term.

Now, another thing to note—especially since it’s not super clear in the chart above—is just how much rare earth stocks remain down from the 2010 bull market. That was when the Chinese rare earths export ban I mentioned earlier sparked a real mania in REE stocks. While I couldn’t track down all the price data going that far back for the chart above, a quick search on Yahoo Finance (or similar platforms) will show you that REMX is now trading nearly 90% below its 2010 highs. This highlights two things: 1) REE stocks are cheap right now, and 2) just how high they could soar if China decides to shut off the taps again.

Bottom line: It’s a compelling setup, especially considering that while U.S.-China relations haven’t exactly “reset” under Biden, they’re bound to get a lot rockier in Trump’s second term.

Have a great rest of your weekend!

Lau Vegys