2019-12-16 14:07:311970-01-01 00:00:00

Trade War Develops

Australia is poised to become the beneficiary of a massive rare earths and other key minerals demand with the United States looking to replace China as its minerals provider. China currently supplies the US with highly important minerals but is considering placing a new sanction which would see all critical mineral exports to the US banned as the trade war escalates.

To recap, the trade war kicked off last year when the US implemented its first China-specific tariff. US President Donald Trump had tweeted ‘China is neither an ally or a friend they want to beat us and own our country’. The two powerhouse nations have been exchanging blows ever since.

A string of US tariffs have been imposed on China’s consumer products, chemical and construction materials, textiles, food and agricultural products, electronics and automotive parts. This was met with China placing tariffs on US goods including agricultural, food, textiles, chemicals, materials and machinery. Tariffs on both sides have continued to increase in a tit-for-tat fashion and China has additionally filed two complaints against the US at the World Trade Organisation. Numerous trade talks in Beijing and Washington this year between the nations have failed to procure a resolution. Relations continued to break down on 1 April 2019 when China banned all types of fentanyl (an opioid treatment) exports to the US. The US retaliated last month by announcing that Chinese technology company Huawei had been placed on its ‘entity list’, banning it from doing business with US companies. The total US tariffs applied exclusively to Chinese goods stands at US$250 billion while the total Chinese tariffs applied to US goods is lower at US$110 billion.

It is now expected that in response, China will ban critical mineral exports to the US, including rare earths, lithium, cobalt and copper. This is a big blow to the US given China dominates the rare earth market and the US gets around 80% of its critical minerals from China.

Consequently, the US is looking to Australia to replace China as its supplier of the essential minerals, in order to mitigate for the potential ban and also to reduce China’s dominance in the rare earths industry. The crucial minerals are utilised in a range of industries including the manufacturing of US military weapons and guidance systems, batteries and many other motorised products.

Washington is currently working with Canberra to come to an arrangement, and the Australian Department of Defence has since been endorsed by US Defence chiefs in support of a US-Australia trade deal.

Australia is one of the only countries which has rich supplies of rare earth and the other essential minerals required by the US, with a number of ASX listed companies having very large, and world class deposits. Australia has approximately one third of the world’s total minerals.

Australian companies within the materials sector are expected to benefit from the news. One being Arafura (ARU), the mining exploration company focusing on rare earths. It’s share price skyrocketed 35% this morning.

In addition, the rare earth exploration company Alkane Resources Ltd (ALK) is expected to benefit. It is engaged in rare earth mineral projects in the central west of NSW in Australia. The Group’s most significant development is the Dubbo Project. Its shares are up 3.75% this morning.

Other Australian companies dealing with lithium copper and cobalt will potentially benefit such as Mineral Resources (MIN), the Australia based lithium miner operating out of Western Australia, along with Oz Minerals (OZL), the Australian based copper miner with its Prominent Hill Project, Carrapateena Project, West Musgrave Project in Australia and various other projects in Brazil.

With the US wanting to decrease China’s market share in the mineral market, in conjunction with the highly anticipated ban on exporting crucial minerals to the US from China, Australia is positioned well to inherit significant gains in market share by procuring the United States’ minerals.

By Isaac Batterham

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