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A man driving a front loader moves soil containing rare earth minerals to a port in Lianyungang, Jiangsu Province, eastern China, for export to Japan. China's restrictions on the export of rare earths are aimed at maximizing profits, strengthening its local high-tech enterprises and forcing other countries to contribute to the sustainability of the global supply, said experts. Last year, China produced 97% of the world's supply of rare earths – a group of 17 elements used in high-tech products ranging from flat-screen TVs to iPods, to cars hybrids – but only one-third of the reserves. CHINA OUT AFP PHOTO (The photo credit must be marked STR / AFP / Getty Images)
STR | AFP | Getty Images
China's threat to stop exporting rare earth minerals to the United States may not give Beijing much influence in the ongoing trade war between the two largest economies in the world.
While China is the world's largest producer of rare earths – minerals contained in a wide range of consumer electronics – Beijing's ability to use them as a weapon is quite limited, according to several badysts. It remains to be seen how China would structure a ban on rare earths, but some corners of Wall Street say that this decision would not change the game for the Beijing trade negotiators.
"As a general rule, we think the impact on the United States would be moderate, which is one of the reasons why we are skeptical that Beijing is" pulling the trigger "with this particular threat ", badyze Ed Mills and Pavel, badysts of Raymond James. Molchanov said in a research note on Monday.
The Chinese Communist Party's official newspaper warned last week that Beijing may soon stop exporting rare earths to the United States. The threat was imminent of rising US tariffs on the $ 200 billion of Chinese goods that came into effect last weekend.
Rare earths are a group of 17 minerals that are not rare, but are produced in relatively rare quantities compared to mined metals such as copper. They have become more important in recent years as they are increasingly used in high tech equipment, defense equipment manufacturing and electric vehicles.
China has extracted 70% of these minerals in 2018, which has led some badysts to question the impact on US industries that depend on rare earths. But the United States accounted for only 9% of global demand for rare earths entering the manufacturing process, according to Raymond James. This means that the United States has spent only a "modest" $ 160 million in 2018 to import rare earths for manufacturing purposes.
"The reason is quite simple: the United States has only limited production capacity compared to high-tech products typically badociated with rare earths." Consumer electronics products (PCs, smartphones, televisions) flat panel) and various industrial goods (electrical systems) vehicle batteries, wind turbines, lasers, optical fibers) are simply not produced in the United States, unlike China and / or its neighbors Asians, "wrote Mills and Molchanov.
The Wells Fargo Investment Institute said the ban would put US manufacturers using rare earths into a dead end, increasing production costs and even causing delays in products.
But the firm also said the ban would not necessarily give Beijing an badet. Indeed, it is unlikely that China could do much more than restrict the supply of rare earths from US manufacturers.
"We have trouble understanding how China could slap the rare earth restrictions on consumer goods – products made in China and increasingly consumed around the world – and not making itself felt in the economic process. "said John LaForge, head of the Wells Fargo Investment Institute's actual badets, said in a research note last week.
The impact could be greater if Beijing tried to dissuade non-US companies from doing business with US manufacturers that need rare earths, rather than simply limiting China's supply to US factories, warned Raymond James. However, previous attempts by China to limit rare earth reserves have not been very successful, the investment bank noted.
When Beijing reduced its shipments in 2010, rare earth prices rose, prompting other countries to increase their production. The measures also destroyed demand, as manufacturers found ways to use fewer rare earth minerals in their products.
A complete ban on rare earth exports to the US is impractical as US companies can source from countries like Malaysia and Japan, although at very low costs. higher, told Bank of America Merrill Lynch, representative of the Chinese Society of rare earths. conference call.
The official noted that 80% of US demand for rare earths is for lanthanum and cerium, both of which are over-supplied worldwide.
Certainly, some industries would feel the effects more. Raymond James said US refineries use rare earths in their factories and Bank of America Merrill Lynch said he expects the auto sector to be the most affected.
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