Rare earth related stocks in Hong Kong and mainland China are enjoying a mini rally after a military coup in Myanmar this week stoked concerns about a supply squeeze. The bounce may be fleeting, according to Guosen Securities.
The military seized power in the Southeast Asian nation on February 1 and immediately imposed a state of emergency for one year, citing fraud in last year’s elections.
Myanmar mined 30,000 metric tons of rare earth oxides equivalent, or 12.5 per cent of global production in 2020, according to estimates compiled by the US Geological Survey, up from 10.5 per cent in 2019. China produced the most at 140,000 tons, or a 66.7 per cent share, while the US accounted for 38,000 tons or 15.8 per cent.
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Shenghe Resources Holding surged by the daily cap of 10 per cent in Shanghai to 19.04 yuan in Shanghai on Wednesday, repeating Tuesday’s feat. China Northern Rare Earth soared 6.3 per cent to 19.34 yuan. In Shenzhen, China Minmetal Rare Earth advanced 5.1 per cent on Wednesday to 20.04 yuan.
In Hong Kong, China Rare Earth Holdings rose 4.5 per cent to HK$0.70 on Wednesday, adding to a 15.5 per cent jump on Tuesday, while MMG has risen a cumulative 15 per cent in daily gains this week.
“The rally may not sustain as the geopolitical risk is not quite high [enough]” unless there is massive unrest, said Gary Ching, Hong Kong-based chief analyst for macroeconomic and strategy at Guosen. “The military would not want to see the economy get hit severely due to the coup.”
Rare earths include the lanthanide series of elements, metals which are critical to modern technologies such as new energy and electric vehicles. They are used in parts for gadgets from mobile phones to flat-panel screens, and catalytic converters in vehicles, and wind turbines.
Prices for 99.9 per cent purity lanthanum oxides from China were indicated at US$3,566 per metric ton in December versus US$1,810 in August 2019, according to the Institute for Rare Earths and Metals. Neodymium oxides of at least 99.5 per cent purity from China rose to US$79,000 per ton from US$48,500, according to its data.
The surge indicates the prevailing strong underlying demand from industry. It may or may not be supported by the political events in Myanmar, analysts said.
Like most economies, the Southeast Asian nation is also suffering from the Covid-19 pandemic. Growth probably eased to 1.7 per cent in 2020 from 6.8 per cent a year earlier, the World Bank said last month. Any sanctions against the military government could worsen the situation, although they are “easier said than done,” Ching added.
Other stocks with stakes in the Myanmar economy have seen a mixed bag of fairly insignificant reactions, suggesting investors are not alarmed by the political upheaval.
Norinco International Cooperation, which has a procurement and construction contract worth US$700 million with the local branch of Wanbao Mining, dropped 3.4 per cent to 6.57 yuan in Shenzhen on Wednesday.
Jiangsu Guotai International Group gained 0.6 per cent to 6.30 yuan on Wednesday. The firm has invested in 168 million yuan (US$26 million) to build an apparel industrial estate in Myanmar. It developed a production base there with an area of more than 930,000 square feet in 2017. China Gezhouba Group dropped 1.4 per cent to 6.49 yuan. The unit of state-owned energy giant China Energy Engineering Corporation is investing US$311 million in a cement production plant in the Mandalay region in central Myanmar.
“The coup impact should not be significant, as investments by Hong Kong-listed companies in Myanmar are not that big,” said Ernie Hon, head of research at Essence International Securities in Hong Kong. He expects the government “will avoid harming the foreign investors’ interest.”
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