The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Vulnerable

05/29/2019

There are seventeen little-known but terribly important minerals known as “rare earth minerals,” which are used for jet engines, missile guidance systems, electric car batteries, antimissile defense systems, satellites, cell phones, lasers, etc.  81% of all rare earth minerals are mined in China, and there is rising concern that China would use our dependence on them as a negotiating tool.  Our defense department consumes 9% of all rare earth minerals mined in China and would be badly hurt by such a boycott.  Think about it!  This could be a very big deal.

Fortunately, in 2010, China had a trade disagreement with Japan and did cut off Japanese access to those minerals temporarily.  Thankfully, this caused the warning bells to go off worldwide, and most countries have been stockpiling the minerals since then.  The U.S. only has one mine for these materials, which produces considerable pollution in Mountain Pass, California.  While it doesn’t produce nearly enough to meet U.S. demand, it does weaken China’s negotiating strength marginally.  Much of that production is then sent to China for processing, which means we are still overly-dependent on China.  Fortunately, an Australian company (Lynas) has announced plans to build another mine in the U.S. with a processing facility.  Good for us, bad for China in the VERY long run.

Companies dependent on Chinese rare earth minerals are a laundry list of blue-chip companies, like GM, Raytheon, Lockheed Martin, Chevron, Nike, Tesla, Apple, Boeing, etc.  A boycott is likely to hurt the value of their stock, in varying degrees.  Already, the value of Chinese rare earth minerals producers and processors is rising.  Of course, any comprehensive trade agreement would cause them to plummet again.  (If a person likes risk – a lot of risk – they might look at REMX.)

Perhaps, a bigger long term danger is that China violates the WTO by selling rare earth minerals to its own companies and other members of its economic alliance, more cheaply than it sells to the rest of the world.  This could change global supply chains to their advantage — a big deal, indeed.

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