China Is Hoarding the Future…with Rocks

Infiniti — a car brand my wife loathes — is moving back to Japan. Yokohama to be specific.

They were one of the very few car companies to have a HQ in Hong Kong. I guess being closer to plants in China has some advantages.

But the goal, for now at least, is no longer volume.

Infiniti, like most others, is pursuing their electric vehicle (EV) and autonomous driving dreams. And that requires relocating to be closer to their parent Nissan.

The move will bring us closer to our parent company so that we can better realise synergies, especially as we electrify our portfolio. It is increasingly important to be closer to design, R&D and manufacturing as our product development evolves in the age of electrification and autonomy,’ Infiniti communication general manager, Trevor Hale said.

Find out why this ‘hated’ resource could rise from the dead in 2019 (free report)

Yet what good will that do if China locks up future technologies by hoarding their rocks?

[Check out our latest weekly video. In it I talk about the huge technological shift taking place in manufacturing and how that could completely change trade dynamics. To watch, click the picture below…]

Rare, but everywhere

Rocks…the future of technology

Let’s back up a bit.

Have you heard about rare earths?

They’re 17 elements which are found all over the world.

One of these 17, cerium, is actually more common in the Earth’s crust than copper. The other 16, besides promethium, are also more common than silver, gold and platinum.

Yet while they might be plentiful, traces of these rocks are very hard to come by in large concentrations…hence the name.

What’s interesting about these rocks is their utility.

We use samarium in lasers, magnets and nuclear reactor rods. Scandium goes into alloys for aerospace and radioactive tracers. Even the device in your pocket is chock-full of these rocks.

Dysprosium, gadolinium, praseodymium and neodymium are all elements that go into your smartphone to make it work.

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Source: Bloomberg
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A lot of these are also crucial elements in making those EVs Infiniti wants so bad. And guess who controls the supply?

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Source: Bloomberg
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It’s almost no contest.

And the rare earths that are dug up outside of China usually find their way there for processing anyway. Reported by BBC News:

In the refining of rare earth ores, China is even more dominant.

Last year, almost 90% of all the processing into usable oxides was done in China.

An Australian company operating in Malaysia produces almost all the rest.

Over the past five years, China’s exports of rare earth oxides have almost doubled, according to official Chinese statistics.

Now, I doubt China would hoard rare earths to impede Infiniti’s EV ambitions. But they might try it on the US…

A new weapon for war

You’ve likely seen me say this before.

The US has the upper hand in this war. They have US dollars. And they’re restricting China’s supply of them through tariffs.

China needs dollars. They need them to prop up their yuan to keep it from devaluating and create more money within their financial system.

But has China now got their weapon in this war…a couple of special rocks?

About 80% of the tech rocks the US imports for military equipment and consumer electronics comes from China.

Think they’re not going to use this as leverage against the US?

From the South China Morning Post:

While China has so far not explicitly said it would restrict rare earths sales to the US, Chinese media has strongly implied this will happen.

In a commentary headlined “United States, don’t underestimate China’s ability to strike back”, the official People’s Daily noted the United States’ “uncomfortable” dependence on rare earths from China.

“Will rare earths become a counter weapon for China to hit back against the pressure the United States has put on for no reason at all? The answer is no mystery,” it said.

It wouldn’t be the first time either. Back in 2010, China and Japan got into a maritime dispute, which ended in China blocking rare earth exports to tech savvy Japan.

It took the US and the whole World Trade Organisation (WTO) to lift the ban and force China to supply the crucial resources.

But say China does it again…I doubt prompting from the US or the WTO makes them lift bans or increase rare earth exports.

So it’s in everyone’s best interests to find new rare earth projects outside of China.

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Source: Bloomberg
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Australia’s new resource play

My friends Sam Volkering and Ryan Clarkson-Ledward over at the Australian Small-Cap Investigator advisory service were all over this months ago. They saw the rare earth market and its dangerous level of concentration.

It’s why they jumped onto the ASX to find new rare earth projects. Projects that were in our very backyard, with the potential to supply the US, Japan and anyone else fed up with China.

We are the second biggest producer of rare earth, after all.

Lynas Corporation Ltd [ASX:LYC] happens to be the largest outside of China. And it wasn’t all that long ago that retail giant, Wesfarmers Ltd [ASX:WES] tried to acquire the far smaller minerals producer.

Lynas has rallied further since, up 79% year-to-date. Many other rare earth producers have done the same on fears of restricted supply will lead to higher prices.

It could be a terrible situation for rare earth end users, Infiniti and the US military included.

But it could be wondrous for Aussie rare earth producers.

Your friend,

Harje Ronngard,
Editor, Money Morning

PS: Free investor report reveals how to get started investing in lithium. Download now to find out more.


Harje Ronngard is the lead Editor at Money Morning. He’s also the Editor of Wealth Eruption and Gold & Commodities Stock Trader, and co-Editor of the Third Wave Portfolio.

The aim of both Wealth Eruption and the Third Wave Portfolio is to find misunderstood opportunities. These are the type of investments that multiply small amounts of money five- to 10-times in size.

Harje has an academic background in investments and valuation. He’s had experience across a range of asset classes, from futures to equities.

For any investment, Harje believes you only need to ask two questions. What is it worth? And how much does it cost? These two questions alone open up a world of opportunities, which Harje shares with Money Morning readers five days a week.


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