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Xi Sends Trump A Message: Rare-Earth Export Ban Is Coming

Via Zerohedge


Back in April of 2018, when the trade war with China was still in its early stages, we explained that among the five “nuclear” options Beijing has to retaliate against the US, one was the block of rare-earth exports to the US, potentially crippling countless US supply chains that rely on these rare commodities, and forcing painful and costly delays in US production as alternative supply pathways had to be implemented.

As a result, for many months China watchers expected Beijing to respond to Trump’s tariff hikes by blocking the exports of one or more rare-earths, although fast forwarding one year later this still hasn’t happened. But that doesn’t mean it won’t happen, and overnight President Xi Jinping’s visit to a rare earths facility fueled speculation that the strategic materials will soon be weaponized in China’s tit-for-tat war the US.

As Bloomberg reported overnight, shares in JL MAG Rare-Earth surged by the daily limit on Monday after Xinhua said the Chinese president had stopped by the company in Jiangxi, a scripted move designed to telegraph what China could do next.

The reason for the dramatic market response is that the presidential visit flags policy priorities, and “rare earths have featured in the escalating trade spat between the U.S. and China.” Specifically, as Bloomberg notes, China raised tariffs to 25% from 10% on American imports, while the U.S. excluded rare earths from its own list of prospective tariffs on roughly $300 billion worth of Chinese goods to be targeted in the next wave of measures. And just in case the White House missed the message, Xi was accompanied on the trip to JL MAG by Liu He, the vice premier who has led the Chinese side in the trade negotiations.

Why does China have a clear advantage in this area? Simple: the U.S. relies on China, the dominant global supplier, for about 80% of its rare earths imports.

The visit “sends a warning signal to the U.S. that China may use rare earths as a retaliation measure as the trade war heats up,” said Pacific Securities analyst Yang Kunhe. That could include curbs on rare earth exports to the U.S., he said.

Xi’s visit came just hours after the Trump administration on Friday blacklisted Huawei and threatened to cut it off from the U.S. software and semiconductors it needs to make its products. A spokesman for China’s foreign ministry told reporters Monday to “please wait and see” how the government and companies respond.

Of course, a Chinese export curb, or ban, would also cripple domestic producers, as domestic rare earth miners would be hurt, and likely need state subsidies, similar to US soybean farmers. But curbs could potentially help companies like JL MAG, which makes magnets containing rare earths that are used in products including electric vehicles and wind turbines.

Finally, to those looking to trade a potential rare-earth export ban, one place would be to go long the REMX rare earth ETF, which after hitting an all time high of $114 in 2011 during the first rare-earth “scare” during the China-Japan trade war, is trading some 90% lower as the market has all but discounted any possibility of a price spike.

Needless to say, should China lock out the US, the price of rare earths could soar orders of magnitude higher.

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I thought Yttrium was a Crypto
I thought Yttrium was a Crypto
May 21, 2019

Ouch, that’s going to sting.

MIke
MIke
May 21, 2019

Just call Canada, they have plenty of that rare earth!

Sorry to bust your bubble
Sorry to bust your bubble
Reply to  MIke
May 21, 2019

They have plenty of those not so rare kidnappings, ehr – renditions too.

PS: Canada isn’t even in the top ten producers. https://www.statista.com/statistics/268011/top-countries-in-rare-earth-mine-production/

Wiliam Crain
Wiliam Crain
Reply to  Sorry to bust your bubble
May 23, 2019

Is it mined in Canaduh or is it something the cheeseheads are siphoning off some other 3rd wrld cntry ?

tracy
tracy
Reply to  Wiliam Crain
May 23, 2019

Rare earths come mostly from Africa if I remember correctly and is a cruel industry to the native peoples.

padre
padre
Reply to  MIke
May 21, 2019

I suppose you are joking with “plenty of that rare earth”!

Salt of the Earth
Salt of the Earth
Reply to  MIke
May 21, 2019

If all else fails, exporting monuments to Ukrainian war criminals could be a real boost in trade for Trudeau.

IllyaK
IllyaK
Reply to  MIke
May 21, 2019

Canada is feces way-station.

Timothy Seeger
Timothy Seeger
Reply to  MIke
May 22, 2019

Like fuck they do, so keep telling yourself that ???????????????????????? and the TALIBAN aren’t going to let the United States of trailer parks steal it from them ????????????????????????????

Ronny Verhoeven
Ronny Verhoeven
May 21, 2019

There is a simple trick: they have to move a considerable chunk of JL MAG shares into the possession of Huawei. In that case, Americans are not allowed to buy anymore by their own regulations, as long as Huawei will remain blacklisted.

You Ain't Seen Nothin' Yet
You Ain't Seen Nothin' Yet
Reply to  Ronny Verhoeven
May 22, 2019

….and here I thought that 10% inflation under Jimmy Carter was a milestone.

George A. Wrigley jr
George A. Wrigley jr
May 21, 2019

Please China, please shut the US off. Let them find their own rare earth and while they are at it, let them build their own products.

Cap960
Cap960
Reply to  George A. Wrigley jr
May 22, 2019

Why do you think the Yanks aren’t leaving Afghanistan? The Yanks are still trying to liberate Rare earth and other resources from the Taliban.

IllyaK
IllyaK
May 21, 2019

Without rare-earth metals you can’t make ANYTHING high tech.

Fe is not rare in irony
Fe is not rare in irony
Reply to  IllyaK
May 22, 2019

Simple solution. America just needs to start taking all of China’s phone scrap and recycling it. Sort of a reverse-garbage flow, like Ukrainian reverse gas.

Guy
Guy
May 22, 2019

Get the popcorn out folks .It will be very interesting.Trump must be tired of winning.LOL
Your move Trump.

Caddy Shack
Caddy Shack
Reply to  Guy
May 22, 2019

His outstanding IQ will solve all problems and still have time left over for 16 holes on the green..

Ralph Conner
Ralph Conner
May 22, 2019

Assisting US manufacturers to obtain rare earths from China was my job. If China wants they can paralyze a great deal of the US high tech industry. And especially, defense and aerospace. There are no alternatives for most of these minerals. China even made it a point to secure the alternate sources for many of these minerals. As if they planned strategically to use the monopolies in negotiation. That would work if they were negotiating with rational players. But the B Teams just knows how to Double Down, LOL.

Cap960
Cap960
May 22, 2019

Tit for tat… Will China dare?

Olivia Kroth
Reply to  Cap960
May 22, 2019

I hope so, it would be a very clever move by China.

Vera Gottlieb
Vera Gottlieb
May 22, 2019

This is going to be very interesting. The US is not accustomed to being stood up against.

tracy
tracy
May 23, 2019

Awesome! Let the whole stinking house of cards fall and burn it. Rare earths should be banned and farmers need to start feeding cows grass and stop growing nasty Monsanto/Bayer garbage crops.

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