Back in February 2017, I asked if we were on the verge of another rare earth crisis.
Fast forward 17 months later and it appears that the recent trade war between the U.S. and China suggests we may very well already be there.
Context is important because history doesn't repeat itself, but it does rhyme.
For those of you not familiar with rare earths or the spat in 2010, here's a brief recap.
In 2010, a Chinese fishing trawler rammed a Japanese coast guard ship in a territorial dispute. The Japanese seized the boat's captain and two weeks later, China stopped shipping rare earths to Japan for two months.
Rare earth elements (REE) are a group of 17 elements that share similar chemical and physical properties and are critically needed by many major industries, especially in the U.S. defense sector.
The 2010 spat led to the usual trend-chasing that happens every time there's a story that's easy to tell and money to be made from it.
Gold companies became rare earth companies - much like gold companies recently turned into crypto and cannabis companies.
Though there were few companies with real assets, the need for rare earths was and is very real, which makes the recent announcement from the Trump administration that it would be placing a 10% levy on $200 billion worth of Chinese goods - including rare earths - that much more puzzling.
The supply chain is firmly in the hands of China, so let's be clear that the U.S. is negotiating from a position of weakness.
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China has accounted for over 90% of global rare earth production and supply on average in the past decade, according to a report prepared by the U.S. Geological Survey in 2017.
The South China Post recently reported that China is the largest exporter by far to the United States of the rare earth elements targeted by the tariffs, accounting for nearly 60% of the US$234.4 million imported to America last year, according to data from the U.S. International Trade Commission.
That is more than five times as much as the next largest exporters in those categories in 2017, France and Japan.
In December of last year, President Trump signed an executive order to reduce the country's dependence on external supplies of critical metals, including rare earths, cobalt, and lithium.
Europe has also acknowledged its dependence on critical metals and is taking steps to establish its own critical metals supply chain.
An important part of that plan is Northvolt, a company founded by two former Tesla executives who broke out on their own to build a battery gigafactory in Europe.
That gigafactory is going to need a lot of critical metals for it to work and sourcing those will take time.
The bottom line is China doesn't need to retaliate the way it did in 2010 because it's holding all the cards.
Lynas CEO Amanda Lacaze was recently quoted saying, "I think there's about 100 Ph.D.s in rare earths working in applications inside China and working in technology development."
"To my knowledge, do you know how many Ph.D.s there are outside of China?" With her fingers, she made a zero.
Regardless of how the latest round of trade war checkers plays out, there is no doubt that companies with real critical metals assets that can develop the deep-pocketed partnerships necessary to advance those projects will command a premium in the months and years ahead.
The technology and defense sectors depend on it.
To your wealth,
Gerardo Del RealEditor, Junior Mining Monthly and Junior Mining Trader.
For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.