Rare earths from China could move to the center of trade war speculation

May 21, 2019

The United States has not imposed tariffs on rare earth exports from China, however, the 17 elements that power everything from high technology to military equipment could soon be at the center of the trade fight between the U.S. and China.

On May 20, China’s president Xi Jinping paid a visit to a rare earth firm in southern China. Following that visit shares in rare-earth related companies in China soared, sparking speculation the sector could be the next front in the China-U.S. trade war.

Reuters reported that Xi visited JL MAG Rare-Earth Co. Ltd. in Jiangxi province.

China accounted for 80 percent of the rare earths imported by the U.S. from 2014 to 2017.

While the U.S. has not imposed a tariffs on rare earths from China, Beijing has raised tariffs on imports of U.S. rare earth metal ores from 10 percent to 25 percent from June 1, making it less economical to process the material in China.

Analysts said that Xi’s visit might indicate China is considering using rare earths as a weapon in the trade war, which provided support for the shares of the Chinese firms.

“No question it’s saber rattling,” Ryan Castilloux, managing director of Adamas Intelligence, a consultancy that tracks the rare earths market, told Reuters. “I think China would be reluctant to cut off supplies to anyone just yet, but the optics are designed to send a clear message – we know your vulnerabilities.”

Shares in JL MAG Rare-Earth Co Ltd surged the maximum limit of 10 percent on May 20 following Xi’s visit, and rose another 10 percent on May 21.

Shares in Innuovo Technology Co Ltd, a rare-earth permanent magnetic materials and products maker, also soared 10 percent to their highest since October 2017. The firm’s shares have gained 54.7 percent so far in May.

Yantai Zhenghai Magnetic Material, Chengdu Galaxy Magnets Co Ltd and Jiangmen Kanhoo Industry Co Ltd rose by as much as 9 percent.
In Hong Kong, China Rare Earth Holdings Ltd soared more than 80 percent.

Asked if China would consider limiting rare earth exports to retaliate against the United States, China’s foreign ministry spokesman Lu Kang said that Xi’s visit was normal and there was no need for over-interpretation.

Limiting rare earth exports to the United States would have an impact as U.S. consumption relies on China, said brokerage Pacific Securities.
However, RBC Capital Markets warned a Chinese ban could backfire by prompting the start up of rare earths production from other countries, breaking China’s hold on the market.

“Should China hike prices for the U.S. or shut it out completely, it would simply speed up that process, leading to rapid development of alternative supplies,” it said. “Brazil, Vietnam, Russia, India and Australia currently stand out as key beneficiaries by having the world’s largest reserves and production.”

 

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