Rare earth minerals a potent weapon in US-China trade war

Rare earth minerals shares stocks US China trade war
China is the world's dominant supplier of rare earths, producing up to 95% of some rare earth minerals.

It has taken a long time but Donald Trump’s consistent prodding of China in the trade war has finally led its major trading partner to play an ace card – the prospect of a rare earth minerals embargo.

Rare earth elements are widely used in technology applications including the Lockheed Martin F-35 Joint Strike Fighter jet and guided missiles and lasers all the way through to electric and conventional cars, wind turbines, batteries and mobile phones.

So ubiquitous are rare earth metals and alloys in high technology applications that it is not an exaggeration to say that over time, the US would be in very serious trouble without them.

China in strong position

That is precisely why China has been pushing the idea of using rare earths as a potent weapon in the trade war with the US, with articles appearing across a wide range of Chinese publications that have close links to the Chinese administration.

China is in a strong position to make good on its threat of a rare earth embargo too, speaking for up to 95% of global output of some rare earth metals and supplying 80% of US needs.

In some cases, the US even sends rare earth metals it mines to China to be processed before being sent back.

Follows action against Huawei

The Chinese threat to impose a rare earth embargo follows US President Donald Trump’s decision to sign an executive order barring US companies from using telecommunications equipment made by firms posing a national security risk.

That order was widely received as the President effectively blacklisting Chinese technology company Huawei and saw Google suspend some business dealings with the Chinese company.

However, the US has temporarily lifted some trade restrictions on Huawei, granting the company a licence to buy US goods until August 2019 – allowing Huawei’s smartphones to continue receiving Android software updates.

President Trump also said: “If we made a deal, I could imagine Huawei being possibly included in some form, some part of a trade deal.”

Huawei has also filed a Texas law suit challenging the constitutionality of a law that limits its sales of telecom equipment in the country.

Rare earth embargo sends share prices soaring

The possibility of a rare earths embargo has been fantastic news for rare earth miners outside of China, with shares in Australia’s Lynas Corporation (ASX: LYC) rocketing 25% since the Chinese news emerged.

Lynas owns the Mount Weld mine in Western Australia, which is one of the richest known deposits of rare earths in the world.

Mt Weld’s production is refined in a Malaysian plant, making it one of the few rare earth producers totally independent of China.

Lynas is also the subject of a $1.5 billion takeover bid by Wesfarmers (ASX: WES).

Other ASX listed rare earth companies to enjoy share price rises include Greenland Minerals (ASX: GGG), Arafura Resources (ASX:ARU) and Alkane Resources (ASX:ALK).

The major rare earth metals are yttrium, lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, lutetium and scandium.

They are found much more commonly than gold in the earth’s crust but they are difficult and expensive to mine because of low concentrations.

The US imported US$160 million worth of rare-earth metals and compounds in 2018, according to the US Geological Survey.

John is a highly experienced business journalist and formerly chief business writer for the Herald Sun. He has covered Federal politics in Canberra, was Los Angeles Bureau chief for News Limited and was also chief of staff for the Herald Sun. He has covered a wide range of small and large cap ASX stocks and has a special interest in mining, technology and biotech.