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Master Thread Dance Your Cares Away/Fraggle/Law Abiding Citizens

Master Threads

ttyh

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MortgageHorn

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Beijing is responsible for 95% of the world’s REE processing.

In other words, even though the US produces 38,000 tons of REEs per year, it is still totally dependent on China to process the elements into a usable form. All US REE production is shipped to China for processing.

China also consumes about 67% of the worldwide REE supply. Japan and the US consume most of the rest.

In short, that’s how China came to dominate this strategic industry, which gives Beijing significant geopolitical leverage.

China can restrict REE supplies instantly, which could cripple any country, including the US. This isn’t mere conjecture; China has exercised this power before, leading to dramatic effects.

In 2010, a collision between a Chinese fishing vessel and a Japanese coast guard boat led to the arrest of the Chinese captain. When Japan refused China’s demands for his release, China responded by cutting off all REE exports to Japan and reducing global exports by 40%.

Japan’s advanced economy had no alternatives to China’s REEs. Consequently, Tokyo swiftly capitulated, having no other option. Tokyo released the captain to China without pressing charges, marking a significant diplomatic triumph for Beijing while leaving Japan humiliated.

This incident caused the price of some REEs to soar between 2010 and 2011.

For example, according to Institute for Rare Earths and Metals in Switzerland, the price of lanthanum (La) skyrocketed by around 20x during this period.

An even bigger mania took off in publicly-traded REE stocks that lasted nearly a year.

The 2010 incident with Japan is solid evidence that China is able and willing to leverage REEs as a strategic weapon.

I think China will play this card again as its rivalry with the US heats up, leading to a price surge similar to—or even more explosive than—the one in 2010. Even a mere threat to restrict supplies could send prices skyrocketing.

We’ve already started to see this happen.

For example, the Biden administration has recently considered a broad semiconductor chip export ban on China.

In response, China announced export restrictions of its own on two strategic metals—gallium and germanium—which Western countries import from China for semiconductor production.

Germanium is employed in various applications, including high-speed computer chips, plastics, military technologies like night-vision devices, and sensors for satellite imagery.

Gallium is utilized in radar systems, radio communication devices, satellites, and LEDs.

According to the chart from Visual Capitalist below, the US imports 100% of its gallium and 50% of its germanium from China


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