Why USA Rare Earth Stock Popped Today
Key Points
China just announced new curbs on rare earth exports to the U.S.
USA Rare Earth is building a business to produce rare earths domestically, in the U.S.
USA Rare Earth stock remains years from profitability, however.
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USA Rare Earth (NASDAQ: USAR) stock, one of a handful of start-up companies attempting to jump-start rare earth oxide mining and rare earth magnet manufacturing in the United States, soared 15.6% through 10:45 a.m. ET Thursday. And why?
China just announced new curbs on rare earth exports.
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Image source: Getty Images.
What's China up to now?
The Chinese Commerce Ministry announced Thursday that government approval will be required for exporting products containing certain rare earth metals. China dominates global mining of rare earths (69% of global production), refining of rare earth oxides (85%), and manufacture of rare earth magnets (90%) -- the end goal of all this work.
For more than a decade, China has used its near-monopolies in rare earths as a lever in trade negotiations, especially with the United States. In the context of President Trump's hefty tariffs imposed on other Chinese exports, China's once again limiting rare earth exports to punish the U.S.
Perversely, that's good news for a company like USA Rare Earth, which aims to produce more of this stuff domestically to fill gaps in the supply line that the lack of Chinese exports creates.
Is USA Rare Earth stock a buy?
It's good news long term, that is. In the short term, even a full-scale Chinese embargo on rare earth exports won't change the fact that USA Rare Earth has no revenue and is losing about $100 million a year.
Analysts do believe the company will earn a profit eventually, but no sooner than 2028. By that time, however, the Trump administration will be heading for the exits, the trade war could be over, and rare earth exports from China could be flowing freely again.
Buying USA Rare Earth stock years before it turns profitable remains highly speculative. Caveat investor, and limit your risks.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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