Our "Great Rare Earth Disconnect" note earlier this week highlighted the widening gap between elevated rare earth prices and tumbling junior miners and producers. William Blair rare-earths analyst Neal Dingmann has also weighed in on the forces driving the selloff.
"Revived rate-hike fears, hot CPI, and other macro concerns along with rare earth headline and company-specific concerns have notably hurt the largely high-beta rare earth group in recent weeks," Dingmann wrote.
The VanEck Rare Earth and Strategic Metals ETF (REMX) has lost more than half its value since peaking in May, even as commodity prices remain strong and demand for conflict-free Chinese supplies continues. That divergence raises one key question: how much of the selloff reflects deteriorating fundamentals, and how much reflects misplaced expectations of easing supply constraints?
Dingmann wrote that investors may be overestimating the relief a thaw in US-China relations would bring.
"Specifically, many investors anticipate (incorrectly, in our opinion) cooling rare earth supply-scarcity with improved U.S./China relations ahead of the next Trump/Xi meetings in November (in China) and December (G20 in Florida)," he said.
He continued:
Further, investors appear to have increased liquidity concerns given heavy spending requirements against minimal near-term revenue and milestone-based government funding that for many companies has yet to be collected. <
