Rare-earth magnet producer MP Materials tumbled on Friday as China confirmed a relaxation of exports, taking pressure off of U.S. manufacturers. Beijing said the U.S. had similarly agreed to roll back recent trade restrictions. The news helped boost the S&P 500 into record territory, but the deal apparently doesn't cover military uses such as Lockheed Martin's F-35.
MP Materials had jumped on Thursday after a Wall Street Journal report that China is slow-walking licenses to American manufacturers as U.S.-China trade negotiations proceed. The WSJ report highlighted challenges Ford Motor and other U.S. producers face as their ongoing supply of rare earths remained uncertain. Though negotiations are back on track, investors have gained conviction that the federal government will move aggressively to improve the economics of rare-earth processing in the U.S.
Meanwhile, Freeport-McMoRan finished among the top S&P 500 performers on Thursday as the United States Copper Index ETF broke out on bets of forthcoming Trump tariffs and improved Chinese demand.
U.S.-China Trade Talks
The U.S.-China trade talks in London failed to unlock exports of rare earth magnets for specialized national security needs, Reuters reported on June 15. CNN sources said that hasn't changed. That could become an issue for Lockheed Martin's F-35 fighter jet as its inventories run down.
The recent U.S.-China deal struck in London wasn't a deal so much as a framework to keep negotiations going without blowing up their economies. A shortage of rare earths threatened to hit the brakes on U.S. manufacturing of autos, robotics and other high-tech gear.
Yet it has since become clear that Beijing hasn't given up any of its leverage. The Wall Street Journal reported that Beijing is only granting six-month export licenses for rare earths, so the clock is ticking to the next U.S.-China showdown, unless Trump gives President Xi Jinping reason to relent.
Investors have remained calm about the U.S.-China rare-earths dispute, likely out of a belief that Trump would yield to Xi's demands, because going without rare earth magnets isn't an option. Now that it's clear there is no resolution, the question remains: Will Beijing's tight grip on rare earth magnets force a major relaxation of — U.S. export controls on chipmaking equipment and advanced semiconductors produced by Nvidia (NVDA) and others?
MP Materials Gets China Lift
China's rare-earth export controls, which threatened a widespread shutdown of auto production last month, are a powerful selling point for MP Materials.
"For years, we have warned that the global rare earth supply chain was built on a single point of failure," MP CEO Jim Litinsky said on the May 8 Q1 earnings call.
MP has methodically ramped up its capacity to produce rare earth concentrate from its Mountain Pass, Calif., mine. It turns it to NdPr metal commercial-grade magnets at its manufacturing facility in Austin, Texas. Yet, until recently, the rare-earth pricing backdrop has weighed on MP stock.
The incentive price for rare earth metals needed to stimulate investment outside China "is many multiples of today's market price," MP CFO Ryan Corbett told a May 20 forum hosted by BofA Securities.
Ryan Castilloux, founder of Adamas Intelligence, elaborated. "The prices we see in China are not market prices. They're strategically designed prices to fend off competition and to feed their downstream champions (such as EV and wind turbine makers) with cheap inputs."
That suggests the need for some combination of market-driven price increases, tariffs and subsidies to fuel the continued expansion of MP and the industry in the U.S.
On the earnings call, Litinksy said that MP is "now in active discussions with major commercial and government stakeholders who recognize the urgency of this moment and are eager to accelerate our mission."
Markets may be betting that on a U.S.-China trade deal that effectively trades chips for rare earths. Nvidia and chip-equipment stocks like ASML and Applied Materials are surging this week, leading the S&P 500 higher.
That will likely cause short-term volatility in MP stock but won't derail incoming federal support for the rare-earth sector.
Copper Price Back In Gear — For Now
The copper futures price eased 1% to $5.01 a pound after jumping close to 3% on Thursday. Copper is making another run after surging to a record around $5.30 a pound in March. That peak followed the Commerce Department's launch of a national-security focused investigation of copper import. The outcome, due by September, is expected to be a tariff as high as 25%.
"Liberation Day" tariffs announced April 2 and the subsequent U.S.-China escalation sent copper futures tumbling more than $1 a pound. But copper regained its footing in the lead-up to the U.S.-China trade truce on May 12.
In a June 2 note, Deutsche Bank analyst Liam Fitzpatrick noted the likelihood of a "more protectionist approach" to come out of the copper investigation. He reiterated a buy rating on FCX stock with a 46 price target.
"FCX is a clear beneficiary compared to global copper peers," Fitzpatrick wrote, noting that domestic production accounts for one-third of its copper output.
At the time, Fitzpatrick said his base case called for a 10% Trump tariff on copper, which would add $600 million to earnings before interest, taxes, deprecation and amortization, he estimated. A 25% tariff would add $1 billion to annual EBITDA vs. the base case, he says.
Bloomberg cited a new report from Goldman Sachs predicting further gains for copper as elevated U.S. imports of copper aim to get ahead of the 25% tariff the firm expects. But the overall copper market is currently in surplus, so Goldman expects the price to peak in August.
MP Materials, FCX, CPER
MP stock sank 7.8% to 35.12, after climbing 1.7% on Thursday. After its June 13 breakout from a cup base, MP is still extended from a 29.72 buy point.
FCX, which powered ahead 6.85% to 44.46 on Thursday, gave back 1.5% Friday. The copper miner has reclaimed its 200-day average and broke above its recent peak of 42.90 on Thursday, which offered an early entry for aggressive investors.
The United States Copper Index ETF eased 0.9% to 31.42 on Friday after advancing 2.7% on Thursday. CPER remains in a buy zone after reclaiming a 30.79 buy point from a cup-with-handle base on Wednesday. The buy zone runs through 32.33.
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