Chinese President Xi Jinping's visit to a rare earth's facility attracted the attention of its critics claiming that China plans to weaponize the materials as the trade war escalates. Shares of rare earth-related companies gained on Tuesday after the president's visit that sparked hopes that they could capitalize on the sector while the trade war between China and the United States escalates.
Recently, United States President Donald Trump threatened to ban the sales of supply chips and processors to China's Huawei Technologies Co. which is known to depend on other nations for its semiconductors and software in smartphones and networking techs. The Chinese president visited the rare earth processing plant after the announcement which means that China plans to invest on its own needs.
Rare earth refers to 17 chemically related elements in the mineral form with magnetic and optical properties that are essential in the manufacture of many electronics. The minerals are used by electric vehicle makers in making a lighter-weight battery and motor components. The rare-earth-based magnets are also used in large wind turbines. The minerals are also used in making light-emitting diodes, or LEDs used to light up smartphones and stadium scoreboards.
China and some parts of Southeast Asia lead the mining and processing of the minerals. The United States Geological Survey said that China owns 71 percent of the mined rare earth in the world in 218.
The MVIS Global Rare Earth/Strategic Minerals Index gained 6.4 percent on Tuesday. The index tracks the shares of 20 producers from 10 countries, including China, Australia, and Canada. The rare earth minerals are free from tariffs imposed by the United States.
Share in JL MAG Rare-Earth Co. Ltd reached its maximum limit of 10 percent on Monday after the visit of President Xi. It gained an additional 10 percent. Innuovo Technology Co Ltd's shares closed higher by 10 percent. China Rare Earth Holdings Ltd in Hong Kong soared more than 80 percent.
According to Yang Kunhe, an analyst at Pacific Securities Co., the visit of the Chinese president to the plant is viewed as a warning to the United States that the Asian country may use the minerals as a retaliation measure as the trade war escalates.
He added that it could include curbs on rare earth exports to the United States. The analyst also said that with curbs on exports, the government may need to develop some policies to bolster the domestic industry, as the rare earth industry is also part of the country's advanced manufacturing plant.
