The Lynas Corporation Ltd (ASX: LYC) share price could get another boost today on news that the Malaysian government will allow the rare earths miner to continue operating its plant in that country.
The Lynas share price has surged more than 40% over the past two weeks as China started to wield its dominance in the market as a weapon against US President Donald Trump.
In contrast, the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index fell 2.4% over the period and even mining giants BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) failed to keep up with gains of around 1% to 2% each.
Too important for Malaysia to abandon
What a turnaround in performance as the Lynas share price had been scrapping around an 18-month low in the first three months of 2019 when there were doubts about whether its Malaysian plant in Kuantan would be allowed to keep running due to contamination concerns.
But the Malaysian Prime Minister Mahathir Mohamad said yesterday evening that "we think we have to renew the license", according to a report in the Australian Financial Review.
No one should be surprised by the decision. The US-China trade war and the "weaponizing" of rare earths has given the asset very significant strategic value.
This is something that wouldn't be lost on Dr Mahathir and will put Malaysia in control of an important cross-road in the global supply of rare earths.
Why Lynas should trade at a premium
China controls between 80% to 90% of rare earth supply, and 17 metals that make up rare earths are used in the manufacture of key components used in electronics, electric vehicles and defence. The US cannot afford to be cut off from this supply chain and that's the big stick China holds over the US – even more so than its vast holdings of US Treasury bonds.
As I mentioned before, Lynas is going to come out a winner regardless of the outcome from the trade war. If China chokes off supply of the metals to the US, the price of rare earths will rocket as they have when China restricted supply to Japan over a territorial dispute in 2009.
Under that scenario, Lynas will be cum-consensus upgrade!
But even if the US and China can settle their trade differences, the world will be regarding Lynas in a different light as the biggest rare earths supplier outside of China. A premium will be attached to its assets at least for the medium-term.
While other rare earth mines and plants will be developed post-haste, it will probably still take years before anyone can catch up to Lynas as the commodity has been neglected for a very long time.
What a difference two weeks makes!
