(Bloomberg) -- Rare earths are getting a lot of attention as a potential weapon China can wield in its deepening confrontation with the U.S.
The power in the threat of supply curbs lies in the critical importance of rare earths in a wide array of applications -- far outweighing their primary monetary value as raw materials. But what American industries from carmakers to appliance manufacturers should perhaps be more concerned by is the possibility of export restrictions that cover fabricated products like magnets. The US. relies on China for nearly two thirds of its supply.
A block on shipments of rare earth metals and alloys to the U.S. is “manageable if ex-China processing gets built out swiftly,” Citigroup Inc. analysts including Oliver Nugent wrote in a report. “The impact gets much more serious were a ban to extend into rare earth fabricated products -- especially magnets and motors, or through third-party suppliers.”
As well as rare earths mining and processing, China dominates global magnet supply and exported a total $1.7 billion last year, Citigroup said. While the U.S. imported about $395 million, including $257 million from China, that masks the potential economic hurt to downstream industries as magnets used in miniature motors perform essential functions in automobiles, wind turbines, and many home appliances.
QuickTake: Why Rare Earths Could Give China a Trade War Cudgel
“The industrial value add at risk if this supply chain gets disrupted is tough to quantify but likely runs multiples higher,” Citigroup said. “While Japan and others ex-China presumably have spare magnet capacity to divert more supply to the U.S., conversations with experts suggest the infrastructure and technical knowledge to respond quickly is very limited in scale.”
Add to that, many of the magnet plants outside China -- the biggest are in Japan and Germany -- are still reliant on China for their rare earth inputs. Of 50,000 tons of mined supply outside China, only about 8,600 tons isn’t integrated with the Asian nation, Citigroup estimates.
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