Legal Turmoil and Lithium Hangover Sink VanEck Rare Earth ETF While Metal Prices Surge

ETF drops 3.14% to €13.35 as legal battles and lithium slump outweigh record rare-earth prices; key holdings Albemarle, PLS hit hard.

A widening legal battle between two major U.S. rare-earth producers is piling pressure on the VanEck Rare Earth/Strategic Metals ETF, even as Chinese commodity prices for the essential minerals hit multi-year highs. On Monday, the fund slid 3.14% to close at €13.35, deepening a sell-off that has knocked nearly 29% off its May peak of €18.76.

The decline is not driven by weak demand for rare earths. On the contrary, China’s rare-earth price index climbed to 272.4 points on July 9, with all 18 tracked elements posting gains for the month. Heavy rare earths such as dysprosium, terbium and lutetium are becoming especially hard to source in bulk. Germanium led the rally with a 27.8% jump, followed by indium at 26.5% and dysprosium at 25.4%, pushing the average basket increase to 16.7%.

Yet the ETF’s portfolio mix is pulling in the opposite direction. The fund holds substantial exposure to lithium miners Albemarle and PLS Group — its top positions at 7.12% and 6.86% respectively as of July 3. Both stocks have been battered by the prolonged slump in lithium prices, dragging down the broader fund despite the rare-earth tailwind.

That structural drag is compounded by corporate and geopolitical headwinds. MP Materials last week filed a lawsuit against USA Rare Earth in a Texas court, alleging theft of proprietary magnet technology. The internal dispute comes just as China added MP Materials and several other U.S. firms to an export-control blacklist, further complicating access to precursor materials and technology transfers. Meanwhile, new Chinese export restrictions on helium took effect July 10, underscoring Beijing’s readiness to weaponize raw materials.

The legal spat is not the only overhang. Energy Fuels’ $1.9 billion acquisition of German magnet maker Vacuumschmelze has sparked dilution fears among analysts, who worry about the strain on the buyer’s balance sheet. In Australia, regulators are monitoring shareholder reductions at Northern Minerals after six China-linked investors failed to comply with a July 2 deadline to cut their combined 17.58% stake.

Lynas Rare Earths, a major ETF holding, is pressing ahead with expansion despite the gloomy sentiment. The company signed a long-term supply agreement with JS Link running to 2038 and announced plans for a 3,000-tonne magnet factory in Kuantan, Malaysia. Even that news failed to lift the fund’s trajectory — a sign that sector-wide headwinds are overwhelming individual corporate milestones.

Technically, the ETF is deeply oversold. The 14-day relative strength index has fallen to 28.1, while the share price trades 16.67% below its 50-day moving average of €15.96 and well under the 200-day line at €14.43. The 30-day annualized volatility stands at 42.76%. Still, the fund remains up nearly 70% from its 12-month low of €7.83, reflecting the magnitude of the earlier rally.

A potential catalyst lies in Beijing. China’s Ministry of Industry and Information Technology has yet to announce production quotas for the second half of the year, and analysts expect further tightening — which could lift heavy rare-earth prices by 50% or more. If that materializes, the commodity rally may eventually overwhelm the lithium drag and the legal noise in the ETF. Until then, the fund remains caught between a booming Chinese raw-materials market and the tangled web of Western supply-chain ambitions, corporate litigation and battery-metal oversupply.