How US–China tensions fuel rare earth ‘supply-squeeze’ fears
00:04 Speaker A
Now it’s time to move on to our stock of the day, the Rare Earth stocks. MP Materials, the Western Hemisphere’s largest producer of rare earths, is in decline after two consecutive days of gains, ending Monday at a new record. However, the sector has been on the rise since Friday on news that China has imposed new export restrictions on rare earth minerals. This is sparking a new round of trade tensions between the world’s two largest economies. China controls approximately 70% of global rare earth mining and approximately 90% of processing capacity. This means any policy moves from Beijing could quickly spread across all sectors, from electric vehicles to clean energy to even chips that power artificial intelligence. I still have Lale Akoner, Michael O’Rourke and Brooke DiPalma at my round table for today. And Brooke, I want to start here with the moves we’re seeing in some of these rare earth stocks because a lot of these policy-related transactions are getting a lot of attention this week.
01:02 Brooke DiPalma
Yes, we have seen some big moves when it comes to these rare earth stocks over the last two days. We experienced more than 36% gains in pre-market trading in critical metals. US rare earths were up about 11%, MP materials were up about 8%, energy fuels and others like Neo Corp were up about 14 to 15%. And this is actually based on the idea that Beijing’s new export controls on rare earths are actually designed to force the United States to lift restrictions on selling these chips to China. And it’s really part of the larger conversation that’s going on and the impact that these rare earths, you know, restrictions can have and investors are really looking to realize gains when it comes to these particular stocks.
01:54 Speaker A
Lale, you said China’s rare metal ban could weaken the AI revolution. Walk me through some of these concerns and the broader implications there.
02:07 Lale Aköner
Of course, I think, first of all, the market thinks this could actually trigger fears of a supply squeeze. Um, the fact that they’re obviously very dominant in these exports. Additionally, the market is pricing in that the United States should accelerate efforts to establish an independent rare earth supply chain. And these are, of course, crucial materials for magnets used in EVs, defense, artificial intelligence and critical technology. So you could see the market being a little cautious about how they priced the impact on big tech. I also see investor sentiment as being influenced by the concept of capital flowing into more real assets that have strategic utility and therefore capital flows that we are seeing now. But yeah, I think the volatility tells us that the market is concerned about what this will mean for AI trading in the short term.
03:22 Speaker A
Speaking of volatility, the cryptocurrency has been moving quite aggressively since these renewed US-China trade tensions. And this comes at a time when gold is at a record high. Michael, you write about the so-called depreciation trade, which means investors lose trust in central banks and move into hard assets. Is crypto part of this story?
03:49 Michael O’Rourke
That was part of the story, and that was part of the trade, but I actually think the trade was probably a lot more of an exaggeration than the substance. So, as I said, there are basic concepts here; Is the Federal Reserve expected to ease, are there geopolitical concerns, fears of dollar devaluation, or the end of America’s exceptionalism? What we’re seeing is this exuberant rise, especially in things like gold and silver, obviously both of which hit another record high this morning. But you know, I think a lot of this goes back to the pandemic in 2020, when the Federal Reserve started to implement a massive QE program, more than doubling its balance sheet. And what we have reached today is that we have reversed this process. You just don’t see it on a daily basis. But there is a lack of trust in governments in this. and again, everything we’ve seen from the elections to the government shutdowns, the inability of governments to pass budgets has fueled this trade this summer.
05:06 Speaker A
Right. this fall.
