The potential for disruption to exports of rare earth ores from Myanmar (Burma) after this week's military takeover has sparked a surge in the share prices of most listed rare earth and downstream magnet companies in China.
The US government has promised an "immediate review" of sanctions against Myanmar after the army seized power in the country, raising concerns of possible cuts to feedstock supplies.
Myanmar is a major supplier of rare earth ores to China. China is heavily dependent on rare earth ore imports from Myanmar, which account for more than 60pc of the country's total ion-absorption rare earth consumption.
Share prices of Chinese rare earth separation producer Shenghe Resource rose by almost the daily limit of 10pc on the Shanghai stock exchange today, while stock prices of other large rare earth companies such as Minmetals and Northern Rare Earth increased by more than 7pc.
Investors are bullish about the long-term outlook for the rare earth market, on expectations that any feedstock supply shortages from Myanmar would reduce production of medium and heavy rare earth products and, in turn, support domestic spot prices.
The prospect of restrictions on rare earth ore exports from Myanmar also bolstered share prices of major downstream companies, including permanent magnet and electric motor manufacturers.
Tightening feedstock supplies of medium and heavy rare earths are likely to drive up production costs and sales prices in the high-end magnet manufacturing market, market participants said. Major magnetic material plant Earth-Panda's share price rose by more than 7pc today, while shares in electric motor producer Broad-Ocean increased by around 8pc.
Some market participants raised concerns that the sharp rise in share prices is being partly driven by speculation and could falter if traders choose to take profits.
But a third round of stockpile purchases of medium and heavy rare earths by China's state reserve bureau (SRB) in March, along with robust downstream demand from the magnet sector and continued supply tightness, are likely to boost the rare earth stock and spot markets in the long term, market participants said.
The political crisis in Myanmar has not had any immediate market impact. Most producers in the country are operating at normal rates and Chinese rare earth separation plants are able to secure ore feedstock imports for medium and heavy rare earth production as normal, Chinese market participants said.
Quota shortages
Annual mining quotas for ion-absorption rare earths issued by the Chinese government are insufficient to meet rising downstream demand from medium and heavy rare earth production following a rapid expansion of the magnet manufacturing industry, leaving the country reliant on imports from Myanmar.
China's mining quotas for ion-absorption rare earths have been maintained at 19,150 t/yr since 2018, after having increased from 17,900t in 2017. But actual production is less than 10,000 t/yr because of limited reserves and strict environmental protection measures, according to market estimates.
China's SRB launched two rounds of national stockpile purchases for medium and heavy rare earths in December and January. But it failed to secure any terbium oxide and only purchased small volumes of dysprosium, yttrium, erbium and lutetium, as SRB's bid prices were well below spot levels.
Most rare earth separation and processing plants have stopped issuing spot offers because of the suspension of logistics services for the lunar new year holiday, as well as expectations of a rise in magnet demand from the fast-growing new energy vehicle industry and a continued recovery in overseas consumption.
China's total imports from Myanmar, including rare earth oxide (HS code 28469019), carbonate ores (HS code 28469048) and compounds of rare earth metals (HS code 28469099), rose by 23pc from 2019 to 35,539t last year, with rare earth oxide alone making up around 21,519t, according to customs data.
