Escalating US-China trade war an opportunity for Aussie rare earths

Escalating US-China trade war an opportunity for Aussie rare earths

As trade tensions flare once more between the United States and China, one commodity is emerging as a potential choke point for Silicon Valley that could shine a light on Australian producers.


As trade tensions flare once more between the United States and China, one commodity is emerging as a potential choke point for Silicon Valley that could shine a light on Australian producers.

Rare earth stocks surged this week when China’s President Xi Jinping took a trip to the Jiangxi province to visit rare earth company JL MAG Rare-Earth, in the wake of US President Donald Trump’s announced slapping of further tariffs on Chinese goods as well as blacklisting Chinese tech company Huawei from dealing with a sizable amount of US companies.

The visit has fuelled speculation that China is gearing up to retaliate by garrotting supplies to the US of rare earths, a key product used in the creation of new energy products such as electric vehicles, rechargeable batteries and wind turbines, as well as other household items such as computers, smart phones and televisions. You can even find it in military equipment.

This makes it a rather large Achilles Heel for the US which, according to a US Geological Survey, derives about 80 per cent of its rare earths supplies from China. But for Australian rare earth producers, it is a timely opportunity.

That goes particularly for ASX-listed Lynas Corporation (ASX: LYC), an existing supplier of rare earths to the US market, which saw its shares surge by nearly 25 per cent this week.

It came on the same week the miner – which is also currently the subject of a $1.5 billion takeover offer from Perth-based conglomerate Wesfarmers (ASX: WES) – outlined to investors its five-year, $500 million growth plan which includes relocating upstream processing infrastructure from its contentious plant in Malaysia to one of several potential sites in Western Australia.

Lynas’ new-found position as a local winner from the US-China tariff war begs the question – will Wesfarmers lift its offer for the fellow Perth company?

The cash offer was dismissed as being too low and undervaluing of and by Lynas, and that was before the target’s shares surpassed the conglomerate’s $2.25 a share offer by about 20 cents.

For now, it appears Wesfarmers is remaining tight-lipped.

Investors will no doubt be watching closely and speculating over the coming days and weeks as to what move China will make in this escalating trade war between the two economic powerhouses.

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