The mounting trade dispute between the US and China is arguably the biggest threat to our share market but there’s one S&P/ASX 200 (Index:^AXJO) (ASX:XJO) stock that looks well placed to benefit from the tension.
This company is rare-earth miner Lynas Corporation Ltd (ASX: LYC) and the LYC share price is outperforming many of its peers with a 0.5% gain to $2.01 during lunch time trade when the materials sector is flat as BHP Group Ltd (ASX: BHP) share price and South32 Ltd (ASX: S32) share price tumbled into the red.
US President Donald Trump’s decision to put Huawei on a “black list” which would prevent US firms from supplying product and technology to the Chinese telco equipment maker is aiding the bullish sentiment towards Lynas.
How the Huawei crisis is helping Lynas
Bloomberg reports that Google is considering cutting off its software support to Huawei (outside of the open source operating system for mobile phones) as a result and the world is watching to see China’s retaliative response.
It doesn’t look like a deal to end the tariff trade war between China and the US is moving further away, and that’s bad news for the global growth although Lynas’ unique position as a rare-earth mineral supplier could keep the its share price outperforming.
The miner is the largest rare-earths supplier outside of China and I don’t think the world can afford to let Lynas fall over as it tries to win the Malaysian government’s support to keep its plant in Kuantan running.
Lynas’ JV plant in the US
Lynas has signed a joint venture agreement with Texas-based Blue Line Corporation to build another plant in the US even as it continues to negotiate with the Malaysian government who is concerned about the radioactive waste from the plant.
The US would be keen to see Lynas succeed as China could cut supply of rare earths to US manufacturers. Rare earths are used in a wide range of electronics like memory chips, rechargeable batteries and magnets in motors.
Critical industries from military and electric car manufacturers need rare earths to make products and China has a history of using its position in the rare earths market to “punish” other countries like Japan during disputes.
I suspect the Malaysian government will be actively pressured by other nations to allow Lynas to keep running its plant in that country while the ASX-listed miner’s US JV plant will be the only large-scale facility in the world that can separate medium and heavy rare earth products outside China.
Rare earths may not be rare (they are actually reasonably easy to find) but it takes time to develop mines and processing facilities. Lynas has an important head start and strong market position.
Even if China and the US were able to reach a trade agreement, I think the way the world views rare earths, and Lynas by extension, has permanently changed.
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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and South32 Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.