Australia primed to pounce amidst the US-China trade war

‘Trade-war’ is a term that has been thrown around frequently to describe the happenings between China and the US over the past few years. As the relationship between the two biggest economies in the world continues to sour, it appears time to reflect on how, exactly, we got to this point. 

‘Trade-war’ is a term that has been thrown around frequently to describe the happenings between China and the US over the past few years. As the relationship between the two biggest economies in the world continues to sour, it appears time to reflect on how, exactly, we got to this point.

Things seemed to begin going seriously south in 2016, after President Trump proclaimed that he believed that China’s entrance into the WTO enabled the “greatest job theft in history”, and subsequently imposed tariffs in his first year in office. In 2017, Trump signed two executive orders, one calling for even tighter tariffs, and the other ordering a review and U.S. trade deficits and their causes. Later that year, Trump and Chinese President Xi Jinping agreed to a 100-day trade negotiation time-frame, which failed after both sides were unable to agree on steps to reduce the US deficit with China. Also in 2017, Trump announced a mass probing into Chinese intellectual property theft, a move that has been cited as his first attack on Beijing.

For Donald Trump and the US Government, 2018 was very much the year of the tariff. Beginning in January, Trump imposed tariffs on all imported washing machines and solar panels. In March, he ordered a 25% tariff on steel imports and 10% on aluminium from all suppliers. In April, the US imposed tariffs of up to 25% on 128 US imports, and unveiled plans for 25% tariffs on about $50 billion of Chinese imports, to which China retaliated by threatening the exact same tariffs back onto the US. In June, the United States set an effective date of July 6 for 25% levies on $34 billion of Chinese imports and said that 25% tariffs will also kick in on an additional $16 billion of goods after a public comment period. China responded in kind with tariffs on $34 billion of U.S. goods.

This back-and-forth game of antagonism continued. And continued. And continued. All year. And has landed us where we are now. Tensions between the US and China have never been higher, nor have the tariffs between the two superpowers. Such hostility and ideological difference is reminiscent of the Cold War, and many fear we are on the cusp of another one.

However, there is a silver-lining. The two superpowers are currently distracted. Being occupied with their big game of chicken, various industries around the world are in the perfect position to capitalise upon industries that have previously been monopolised by the two warring nations. Industries that are currently suffering, due to the impacts of the mass tariffs and embargoes.

China, for example, has had a monopoly over the rare earth minerals industry since 1995, and continues to be responsible for >90% of the world’s heavy rare earth outputs, as well as being home to a third of the world’s rare earth reserves.

The rare earth industry had been suffering from a lack of investment, until trade tensions this year stoked demand for supply from outside of top producer China after China’s state media implied it could curb exports to the United States.

This is where Australia comes in, presented with a rare opportunity to become a big fish in the pond of natural resource exports. Northern Minerals (ASX: NTU) is among Australia’s most advanced development projects for rare earths, a group of 17 minerals critical to high tech industries and defence. It was announced earlier this week that Northern Minerals has raised $30 million from shareholders to fund expansion at the rare earths developer’s Browns Range project, located in the Kimberley, WA, after trade tensions refocused interest in the industry. The funds will be used to achieve some primary aims stipulated by the company: fund further exploration, the acquisition of an ore sorting machine, and an examination of whether it can move more production onshore.

One mineral of particular interest is dysprosium, a mineral integral to the construction of magnets and batteries used in electric vehicles. Currently, China indeed has an astounding clout over its production, but Northern Minerals is on track to becoming the largest producer of dysprosium outside of China, according to Northern Minerals chief executive George Bauk. Assisting NM’s efforts to expand their dysprosium output is the burgeoning demand for the mineral, elucidated in the 50% price increase that has occured in 2019 alone.

“At the start of this year, we started with dysprosium at US$180 a kilogram and just recently went to $300 a kilogram, so we’re talking 50 per cent uplift,” Bauk said. “There’s a lot of forecasters talking about a longer way to go. I mean, the magnet industry can afford a much higher price than the $270 a kilo that we’re seeing at the moment for dysprosium.”

Resource Analyst Tim Treadgold has echoed the sentiments of Bauk, further substantiating the company’s prime position to dominate and expand.

“[Northern Mineral’s] flagship Browns Range project at Halls Creek, WA, is on its way to full-scale operation and is currently at bankable feasibility study level,” Treadgold observed.

“Northern Minerals’ $70-million heavy rare earths plant in WA’s east Kimberley employs just 60 people but it is a complex operation, with 3,500 data collection points located around the mine site and an onsite laboratory to analyse its product.”

Reach Markets currently has an investment opportunity with Northern Minerals, geared towards those interested in jumping aboard this potentially lucrative and constantly-expanding bandwagon.

More information on Northern Minerals can be found at their Investor Centre.

*Reach Markets are paid a retainer to assist NTU with private investor management.

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