ASX magnesium shares are going gangbusters. What's happening?

China's monopoly on materials is sending magnesium prices through the roof…

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Another in-demand resource is skyrocketing in price as buyers are at the peril of a short-handed China. Today, ASX-listed magnesium shares enjoyed a rapid growth spurt in value as a shortage unfolds.

This follows reports of mere weeks' worth of magnesium available across Europe. In turn, the unmet demand has sent the price of magnesium figuratively to the moon, taking just about any publicly traded company with magnesium exposure along with it.

What is causing the magnesium shortage?

Investors of ASX-listed magnesium shares are rejoicing while the price of the element takes flight. Though, many might be wondering, what is setting this into motion? Well, the "catastrophic" shortage across Europe appears to be the byproduct of China's efforts to curb domestic power consumption.

China accounts for 87% of the world's magnesium production. This puts immense importance on the upkeep in output from the country. Unfortunately, with the reduction in industrial energy usage, China's magnesium production has been relatively non-existent recently.

In response, a joint call to action has been made across Europe's industry associations. In this online publication, it is reported that Europe is at imminent risk of production shutdowns. This is due to magnesium's essential role in being an alloy material, improving the workability of aluminium and reducing density.

In addition, Europe relies on China's magnesium exports almost entirely, typically being 95% of its supply. As a result, the entire European continent is expected to run out of magnesium stockpiles by the end of November.

If this were to occur, industry associations fear the consequences would be far-reaching. Overall, it could result in the degradation of entire European Union value chains, including end-use sectors such as automotive, construction, and packaging.

Inevitably, if unresolved, the shortage could lead to business closures and job losses.

ASX magnesium shares riding the price hike

Though the shortage is bleak, investors were today looking for companies that might rise to prominence because of the shortage.

By the end of the session on Tuesday a handful of ASX shares had caught the magnesium hype bug, these included:

  • Korab Resources Limited (ASX: KOR) up 178% to 7.5 cents per share;
  • Latrobe Magnesium Ltd (ASX: LMG) up 61% to 5.3 cents per share; and
  • Magontec Ltd (ASX: MGL) up 50% to 48 cents per share.

Additionally, the letter pointed out that magnesium prices had reached a mind-boggling $10,000 to $14,000 per tonne. For comparison, only a year ago the price was roughly $2,000 per tonne.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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