Lee Samaha, The Motley Fool
3 min read
In This Article:
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A thawing in the trade relationship between the U.S. and China might not be good news for all companies.
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The U.S. still needs to secure rare earths even if it's buying from China again.
Shares in rare earth materials and magnetics company MP Materials (NYSE: MP) crashed by more than 10% by late afternoon today. The decline comes after officials from the U.S. and China announced that the two countries had signed a new trade deal.
Rare earths are an integral part of the new deal, with U.S. Commerce Secretary Howard Lutnick telling Bloomberg, "They're going to deliver rare earths to us," and when China does this, the U.S. will "take down our countermeasures." As such, rare earths aren't a byproduct of the trade deal or even a negotiating point; they are a conditional part of it.
That's good news for U.S. industry but not necessarily for MP Materials, a company that's aiming to be "America's rare earth magnetics champion."
CEO James Litinsky left investors in no doubt on the matter on the last earnings call when saying "our business should grow to many multiples of its current scale and recent events are accelerating that trajectory. Scaling, of course, will require significant additional capital." He said management was "now in active discussions with major commercial and government stakeholders who recognize the urgency of this moment."
Indeed, there has been market speculation that the U.S. administration was working to help secure funding for MP Materials. However, the latest trade deal would suggest a little less urgency on the matter.
Investors might reflect on the fact that the twists and turns of the trade conflict with China won't determine a binary event for MP Materials. It seems likely that while the U.S. will continue to procure rare earth materials from China, the current administration may pursue a parallel track of facilitating the growth of a domestic supply of rare earth magnets -- good news for MP Materials.
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