Rare earth stocks are on fire as fears of a U.S.-China trade war intensify. China’s recent announcement of export restrictions on chipmaking metals to the U.S. has triggered a surge in the mining industry. Investors are worried that China, with its rare earth dominance, could use this advantage as leverage in a potential trade war with Washington.
The largest rare earths producer outside China, U.S.-based MP Materials Corp (NYSE:MP), has experienced a remarkable 7.3% increase in trading this week. Meanwhile, Lynas Rare Earths Ltd (ASX:LYC), operating the biggest rare earths processing plant outside China and listed in Australia, has seen a respectable 4.2% boost in their stocks.
Smaller Australian rare earth miners like Arafura Resources Ltd (ASX:ARU) and Australian Rare Earths Ltd (ASX:AR3) have also witnessed significant growth, with their stocks rising between 9% and 14% this week. Even Chinese metal miners, including Jinduicheng Molybdenum Co Ltd (SS:601958) and China Nonferrous Mining Corp Ltd (HK:1258), have joined the rally, with each gaining around 4%. These companies are hopeful that tighter supplies will translate into higher prices.
China’s decision to restrict the export of gallium and germanium products, crucial materials used in semiconductors and electronics, has ignited concerns about potential limitations on the export of other materials, particularly rare earths. China holds the title of the world’s largest producer of rare earths, and this fact has put the global market on edge.
Adding to the unease, a top China advisor has hinted that the gallium and germanium curbs are only the beginning. They warn that if countries persist in pressuring China, more restrictions could be on the horizon.
Rare earths are a group of 17 elements with diverse applications in industrial, electronic, and military sectors. They play a vital role in the manufacturing of electronics. Currently, China dominates the rare earth production market, accounting for approximately 70% of global output. The U.S. and Australia follow behind. It’s worth noting that China previously attempted to limit its rare earth exports in the late-2000s due to environmental and conservation concerns, but their actions were challenged by the World Trade Organization in 2014.
The surge in rare earth stocks signifies the gravity of the situation. Investors and industry experts are closely monitoring these developments as the tension between the U.S. and China continues to escalate.