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In an effort to increase the supply of rare-earth minerals, the Obama administration will bring a new trade case against China (NYSE:FXI) on Tuesday. China produces more than 95 percent of the world’s rare-earth minerals. In addition to the United States, the European Union and Japan will ask the World Trade Organization to force China to relax its export restrictions on key materials.
The move, which will be announced by President Obama, is part of a wider effort to reduce unfair trading practices by China that can place numerous companies at a disadvantage. Rare-earth minerals are used in products such as flat-screen TVs, hybrid cars and even Apple’s (NASDAQ:AAPL) popular iPhone.
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In addition to electronics, the 17 rare-earth minerals are also used in advanced weapons. The WSJ reports, “China’s hold on the rare-earth minerals market has raised concerns that the U.S. is too dependent on the country for materials that are necessary for complex weapons systems. The Pentagon last fall, in a report to Congress, warned lawmakers about the U.S. military’s dependence on the raw materials and recommended alternatives to Chinese supplies. In 2009, the U.S. and European Union launched a case against China at the WTO related to other industrial raw materials, such as magnesium and zinc, maintaining that China limited exports in order to boost prices and help domestic producers.”
According to WTO procedures, China will have 10 days to respond and must hold talks with the United States, European Union and Japan within 60 days. A formal WTO panel could be requested to dig deeper into Chinese practices if an agreement is not reached within that time frame.
The United States has only one rare earth mining company, Colorado-based Molycorp Inc. (NYSE:MCP). The company recently announced a $1.3 billion deal to purchase Neo Material Technologies in order to give it more exposure to China. Shares of Molycorp have gained more than 24 percent this year. Other rare-earth minerals investments such as Avalon Rare Metals Inc. (AMEX:AVL) and Rare Element Resources Ltd. (AMEX:REE) have increased 16 percent and 75 percent year-to-date, respectively.
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