An indirect threat by China over rare earth materials sent shares of related Chinese and Australian companies sharply higher on Wednesday, and raised worries among investors of an even deeper wedge between Beijing and Washington.
The gains for those companies came after a comment from an official with the National Development and Reform Commission.The official said “if anyone wants to use imported rare earths against China, the Chinese people won’t agree,” according to Xinhua via the website of state television producer CCTV.
Rare earth minerals are used in the production of everyday devices, such as mobile phones, computer memory chips and rechargeable batteries. “By making unilateral moves to contain technological development of other countries, the United States seems to have overlooked one fact: the international supply chain is so intertwined that no economy could thrive on its own,” the Xinhua article also said.
The editor in chief of China’s Global Times newspaper Hu Xijin tweeted Tuesday that the country was “considering restricting rare exports to the U.S.”
China is the world’s biggest producer of those minerals. The U.S. imported 80% of its rare-earth compounds and metals from China between 2014 and 2017, according to the U.S. Geological Survey. A visit by President Xi Jinping earlier this month to one of the country’s world’s biggest rare-earth mines also stoked concerns that China could use those materials as a weapon in its trade tussle with the U.S.
Shares of Chinese miner JL Mag Rare-Earth 300748, +10.01% jumped 10% and China Northern Rare Earth Group High-Tech 600111, +8.68% gained 8%, while in Australia, Lynas Corp. LYC, +15.48% surged 15%.
In a note to clients on May 24, analysts at Bank of America Merrill Lynch put the threat of China using rare earths as trade leverage into some perspective. It said that “even though China has shown an ability to influence dynamics in REEs (rare earth elements) for short periods of time and cause considerable headwinds for global manufacturers, it is difficult to bring about sustained shortages.
“Indeed, supply security is high on the agenda of most countries, with the U.S. looking to extract rare earths through novel processes including the tapping of coal deposits among other initiatives,” added the analysts.
But the veiled threat by Chinese officials did play out across broader markets, as U.S. stock YMM19, -0.62% ESM19, -0.59% NQM19, -0.83% and European equities SXXP, -1.26% fell.
“There is a growing acceptance that the U.S. and China are in this for the long haul. Possible Chinese retaliation on rare earths has got investors really starting to notice,” said Neil Wilson, chief market analyst for Markets.com.
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