The last time China significantly cut its production of rare earth elements back in 2009, prices jumped up to 2000%. Just this week, rare earths research company Adamas Intelligence has reported that China is cutting production again.

Last year, China was the source of 80% of the world’s rare earth elements (REE), in a global marketplace that has become increasingly reliant on REE in the engines of electric vehicles, in radar equipment, jet engines, and a number of military guidance systems. Unsurprisingly, the market is watching these developments with a great deal of apprehension due to the scarcity of global supply and China’s stranglehold on the market.

According to the report by Adamas, China plans to cut production by 45,000 tonnes in the latter half of 2018, which would likely place strain on global supplies and see ensuing REE price rises from Chinese suppliers.

If those numbers are correct, alternative producers like Northern Minerals (ASX: NTU), which owns the only heavy rare earth producing mine in Australia, stands to benefit from increased revenues. While potential competitors will be racing to get alternative options off the ground from scratch, NTU already has the infrastructure in place, and in production, at a time when it will take years for new mines to be commissioned.

Potentially conscious of the ramifications this information will have on the wider rare earths market, an official with the Association of China Rare Earth Industry (ACREI) spoke out to Global Times, a Chinese-based publication.

“It is true that the production quota for the second half is lower than that of the first half, but production in the first half was the largest in five years,” said the official, who spoke on condition of anonymity.

To make a reasonably analogous comparison to illustrate this point, the price of Brent crude oil has recently rebounded to upwards of US$80 a barrel after falling as low as US$30 a barrel only two years ago when shale production was at its peak.

Now that production has been reduced, although not by any measure close to China’s capacity to cut REE production, the price of oil has rebounded. Oil market observers at HSBC said last month that the possibility of $100 a barrel was “not out of the question, given the increasing lack of global spare capacity”.

The effect on the rare earth market threatens to be even more extreme if the Adamas Intelligence numbers are correct since the market is likely to be extremely sensitive to any changes within a country that essentially controls the market price.

This could be an ideal scenario for producers who lay outside of China, providing companies like Northern Minerals with an enormous opportunity to capitalise upon.

With Northern Minerals on track to become the largest producer of dysprosium outside of China, the company is well positioned to gain significantly from any upward pressure on prices that may occur as a result of China’s production cuts.

And as was the case with the price of all rare earths back in 2010, history would suggest that when the Chinese play this card, dysprosium prices could move very quickly.

Northern Minerals trades under the ASX code: ‘NTU’

*Reachmarkets are paid a retainer to assist NTU with Private Investor Management