Rare Earth Stocks Plummet on China Trade Deal

Rare earth stocks took a hit this morning after China indicated it would approve new exports of rare earth minerals to the U.S.  This, after the White House announced a deal had been reached between the two largest economies in the world.

As I noted a couple weeks ago, the U.S. automotive industry cannot function without a steady supply of rare earth minerals.  They’re used for everything from transmissions and alternators to motors, sensors, seat belts and cameras.  This is why the threat of losing access to China’s rare earth bounty has been so concerning for U.S. automotive manufacturing. 

It was such a big concern that the head of a trade group representing some of the biggest car brands in the US, sent a letter to the Trump administration, warning of catastrophic results if trade negotiations regarding rare earth metals weren’t worked out soon. 

So this new deal is great news for the automotive industry, as well as car buyers that would’ve definitely felt the pinch if this export ban on rare earths would’ve continued into summer.

Rare earth stocks, on the other hand.  Well, not so much.

Are Rare Earth Stocks in Trouble?

While a number of rare earth stocks took a beating today, don’t count them out just yet.

Truth is, even with China lifting its ban on rare earth minerals, long-term, the U.S. must have access to domestically-sourced rare earth minerals.  Without it, we remain vulnerable to the will and whims of the Middle Kingdom.   Make no mistake: just because China relented, doesn’t mean the U.S. government will stop pushing to create a domestic source of rare earth minerals.

Some of the rare earth stocks that are getting hit today will likely stabilize in the coming weeks.  And this could give you an opportunity to buy a few of these on the cheap.  Some of the rare earth stocks worth watching include …

• MP Materials (NYSE: MP)
• Aclara Resources (TSX: ARA)
• Energy Fuels, Inc. (NYSE: UUUU)
• Mkango Resources (TSXV: MKA)
• NioCorp Developments (NASDAQ: NB)
• Ucore Rare Metals (TSXV: UCU)

Indeed, with China agreeing to end the export ban on rare earth minerals, the U.S. auto industry has been given a reprieve.  But no matter how you slice it, long-term, U.S. automakers will not be able to effectively compete in the global marketplace if they can’t gain access to domestically-sourced rare earth minerals. 

Based on our checks, we believe that a combination of recycling operations and domestic rare earth production will provide a self-sufficient supply chain of rare earths in the U.S. within the next seven to ten years.

Of course, a lot can happen over the next 7 to 10 years.  More domestic competition, changes in rare earth demand, new rare earth production in other parts of the world.  But one thing that won’t change is China’s grip on rare earth supplies in the near-term.  And that will be enough to justify continued investments in U.S. rare earth production.  Invest accordingly.

Jeff

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