The threat of a global trade war between the world's two biggest economies may be knocking our miners around but Lynas Corporation Ltd (ASX: LYC) is uniquely placed to benefit from the fallout.
The US is threatening to impose tariffs on another US$200 billion of Chinese imports and China is vowing to respond in kind even though the Asian giant will quickly run out of US imports to tax given the huge trade gap between the two countries.
This is why experts believe China could restrict the export of rare earths to hit back at the US as the country is the world's dominant producer of these minerals which are essential in manufacturing electronics including smart phones.
If China chooses to wield this big stick it will drive up the price of the commodity and put Malaysian-based Lynas in a strategic position in the trade war, according to The New York Times.
It hasn't been an easy road for Lynas with the company coming close to collapsing a few years ago as it struggled to get its Malaysian processing facility up and running. Extracting rare earths is a dirty business, and by that, I mean its environmentally unfriendly.
But to its chief executive Amada Lacaze's credit, she seems to have pulled off the difficult task and the stock has doubled in value over the past year when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) is up by less than 10%.
China has used rare earths as a trade weapon before against Japan in 2010 to get its way during a territorial dispute. That move sent prices of rare earths skyrocketing and you can bet a similar outcome will happen if China uses this as a leverage against the US.
It is the world's nervousness about China's control of the rare earths market that gives Lynas a value above just the price of the commodity.
This is much more than what we can say about other ASX miners like BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG).
The shares of these companies have suffered from the escalation in trade tension as the tariffs will reduce demand for raw materials from Chinese factories.
But it isn't all upside for Lynas. Companies such as Tesla Inc are developing new engines that do not use rare earths, according to the NYT, and other manufacturers are probably spending aggressively on R&D to reduce their reliance on these minerals in their production process.
Nonetheless, the potential outbreak of a full-blown global trade war will put Lynas front and centre in the minds of investors – and that can only be a good thing for the $1.4 billion market cap miner.
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