SHANGHAI • Shares in rare earth-related companies have soared, led by jumps in shares of Chinese producers, after President Xi Jinping visited a rare earth firm in southern China, sparking speculation that the sector could be the next front in the China-US trade war.
On Monday, Mr Xi visited JL Mag Rare-Earth in Jiangxi province, state media reported.
The MVIS Global Rare Earth/ Strategic Minerals Index, which tracks the shares of 20 producers from 10 countries, including China, Australia and Canada, jumped 6.4 per cent on Tuesday in its biggest one-day gain since October 2011.
China accounted for 80 per cent of the rare earths imported by the US from 2014 to 2017.
So far, China's rare earth exports have been spared from recent tariffs by the United States, which has decided not to impose import duties on those and some other critical minerals from China as part of the trade war.
Beijing, however, has raised tariffs on imports of US rare earth metal ores from 10 per cent to 25 per cent from June 1, making it less economical to process the material in China.
Analysts said that Mr Xi's visit might indicate China is considering using rare earths as a weapon in the trade war.
"No question it is sabre rattling," said Mr Ryan Castilloux, managing director of Adamas Intelligence, a consultancy that tracks the rare earth market.
"I think China would be reluctant to cut off supplies to anyone just yet, but the optics are designed to send a clear message - we know your vulnerabilities," he added.
Asked if China would consider limiting rare earth exports to retaliate against the United States, Foreign Ministry spokesman Lu Kang said on Monday that Mr Xi's visit was normal and there was no need for over-interpretation.
Limiting rare earth exports to the US would have an impact as American consumption relies on China, said brokerage Pacific Securities. However, RBC Capital Markets warned that a Chinese ban could backfire by prompting the start-up of rare earth production from other countries, breaking China's hold on the market.