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Dragging trade discord between both the US and China has brought serious barriers for the long-rooted supply chain of major manufacturers while the service sector has emerged unscathed for now. Yet despite a stronger strike potential from the US when it comes to import duties, speculations over rare earth metals scarcity are emerging. Following the 25% increase in US trade duties on $200 billion Chinese products, China responded with a $60 billion rise effective in 1 June 2019 on 5’000 US goods ranging from agriculture to rare metals. Recognized as the world's largest producer and processor of rare earths, China may well decide to restrict exports of these materials to the US, which are essential for the production of finished semiconductor products (e.g. electronics, EVs or military equipment, for example).
With a market share of over 85%, China’s use of its dominant position as principal supplier of rare earth in the trade dispute with the US would weigh the balance in current negotiations ahead of a potential increase in tariffs on an additional $300 billion worth of Chinese goods. The heavy dependence of the US manufacturing industry supply chain to China’s raw materials delivery could seriously threaten the US economy. In this backdrop, mining companies have benefitted from a lift, with Japanese and Australian stocks most likely to benefit from the situation if US producers are required to look for alternative suppliers. This is the case of Lynas Corporation (+22% week-to-date), an Australian rare-earths mining company which is planning to ramp up production at its Australian plant producing neodymium and praseodymium oxide, two crucial rare earth components for the production of EVs. In such circumstances, there seems to be further opportunities in the industry, despite risks of a global economic slowdown.