China's rare earth mineral squeeze puts defense giants in sight

The Automotive and Robotics industry have been particularly hard hit by China's rare export restrictions in recent weeks, but analysts warn that Western defense giants will also feel the heat.

Top American and Chinese officials resume trade discussions in London for a second consecutive day on Tuesday and urge tensions about rare earth minerals and advanced technology.

The White House has indicated a willingness to relieve the export controls of Chip if Beijing accelerates rare exports of the earth, which increases investors the hope for a breakthrough. Both parties have accused each other of coordinating a provisional trade agreement concluded in Geneva last month.

The Chinese Ministry of Trade At the beginning of April, export restrictions imposed on various rare earth elements and magnets that are widely used in the automotive and defense sectors. The curbs were part of a reaction to the tariff increase of US President Donald Trump to Beijing's exported products.

Director Kevin Hassett of the National Economic Council On Monday, CNBC's “Squawk Box” told that he expected a deal to be closed over rare earths quickly.

“So our expectation is that … immediately after the handshake all export controls from the US will be relaxed, and the rare earths will be released in volume, and then we can go back to negotiations on smaller things,” Hassett said.

China is the undisputed leader of the critical minerals Supply Chain, which produces around 60% of the world supply of rare earths and processes almost 90%, which means that it imports and processes these materials from other countries.

American officials have previously warned that this dominance is a strategic challenge in the midst of the Pivot to more sustainable energy sources.

William Bain, head of trade policy at the British Chambers of the Commerce, said that there was some progress on the first day of American commercial interviews, but it remains “absolutely vital” to achieve a further breakthrough about rare earth policy.

“We saw some relaxation during the weekend with licenses granted in sectors related to robotics and electric vehicles, but if you take a critical mineral like Samarium, for example, within Magneten, that is absolutely essential for F-35 fighter jug ​​construction in the US,” Bain Cnbc's “told us on Tuesday.

“They can't make them without it. And have no access to that, both the American construction in that area has a serious influence on that area, but perhaps also its national security if that remains,” he added.

Shares of some European defense giants acted on Tuesday morning lower prior to the new negotiations on the US china. Manufacturer of the German tank gearbox Stretch Almost 8% came to lead losses on the Pan-European Stoxx 600 index. Sweden's Saab and Germany RheinmetallIn the meantime, both fell more than 3.5%.

CNBC has contacted the US Department of Defense and the European Commission, the executive arm of the European Union, for comment.

The restrictions imposed by the Chinese Ministry of Trade At the beginning of April, companies require a permit for the export of rare earths and magnets.

Rare Earth elements play an integral role in modern defense technologies, according to the SFA-Oxford Consultancy, making advanced radar and sonar systems, laser guidance and propulsion technologies in combat environments.

Autale industrial groups have complained about the cumbersome process of trying to get the necessary approvals, warning for increasing production beds as the stocks deplete. China nevertheless seemed to offer us and European automatic giants something of a delay at the weekend.

The Chinese Ministry of Trade on Saturday said it was willing to set up a so -called “Green Channel” for eligible export license requests to speed up the approval process to companies of the European Union. Beijing also granted rare earth classes to suppliers of US Auto Giants General Motors, Ford and Jeep maker Stellantis, Reuters reported on Friday, stating public sources.

Gracelin Baskaran, director of the Critical Minerals Security Program of the Center for Strategic and International Studies (CSIS), a think tank established in Washington, said that it was only a matter of time before the defense industry sounds the alarm about a rare earth shortage and noticed that many of them have already been concluded.

“Defense companies are in the front line of Impact, since we need thousands of pounds rare earths in every submarine and fighter jet,” Baskaran told CNBC per e -mail.

The US, the European Union and Australia must coordinate the interventions on the demand and demand side to stimulate the production of rare earthly earthly, said CSIS 'Baskaran, adding that this need mainly occurs because of the prevailing price dynamics.

“If the price of Praseodymium-Neodymium (PRND) oxide-a critical input for rare earthly permanent magnets-to-2030 less than $ 60 per kilogram, almost half of the expected non-Chinese supply would not be viable financially. On the delivery side, Baskaran said,” said.

“On the demand side, the implementation of incentives to buy minerals from Allied countries – comparable to the provisions in the Inflation Reduction Act – will be essential,” she added.

Last month, China temporarily pampered export restrictions on 28 American companies after a commercial right between Washington and Beijing in Switzerland.

China continued to block the export of that country of seven rare earth metals to the US. Many of the 28 American companies that have given a delay of double use export restrictions are common goals of Beijing's sanctions because of their activity in the defense sector.

Henry Sanderson, Associate Fellow at the Royal United Services Institute (RUSI), a London-based defense and security thinking tank, said that the defense industry has not been as vocal when it comes to concerns about the impact of a rare earth shortage.

“Defense is difficult because it is less transparent, but they use absolutely rare earths and rare earth magnets and especially what Samarium Cobalt magnets are called, but it is a much smaller question than EVs or robots or something similar,” Sanderson told CNBC by telephone.

“I am less clear whether defense is just as worried as the civilian industry, but that they say that, looking at the level of magnet production in the West, it is very small,” he added.

– CNBC's Eunice Yoon and Erin Doherty have contributed to this report.