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Al Root

Military tensions are increasing between China and Japan. Investors should take note. It can become a rare earth story.

Over the weekend, Chinese J-15 fighter jets locked onto Japanese F-15s, The Wall Street Journal reported. The aircraft were southeast of Japan's Okinawa Prefecture. The incident came days after Japanese Prime Minister Sanae Takaichi said that a Chinese attack on Taiwan could be a " survival-threatening situation" for Japan.

For investors, military conflict can obviously impact aerospace & defense shares. In the case of China and Japan, new conflict could also disrupt rare earth metals markets, again.

Rare earths are a group of 17 rare earth elements, with names like neodymium, cerium, lanthanum, and praseodymium, which aren't as well known as copper and industrial metals, but UBS calls them the " spice" of manufacturing. They are critical in modern technology, used in everything from iPhones, to EVs, and even in fighter jets.

Some 390,000 metric tons of rare earth oxides were mined in 2024, up from 110,000 tons a decade ago.

China dominates rare earth production with an estimated 85% of global processing capacity. It has used its dominance in trade negotiations and conflicts with countries in the past, including Japan. In 2010, China briefly suspended rare earth exports to Japan over a East China Sea dispute. Lately, China has been making it more difficult for companies to obtain export licenses for rare earth materials.

In late October, President Donald Trump negotiated a rare earth-truce with China's President Xi Jinping, ensuring rare earth materials would continue to flow from China. That is an American agreement though. Japan makes a lot of electronics and is a top destination for rare earth exports. Disrupting the China-Japan rare earth supply chain can create more volatility for U.S. rare earth producers — and their stocks.

It's already been quite a year. Shares of MP Materials, the largest miner of rare earth materials in the Western Hemisphere, have ranged from below $16 to more than $100 this year. The peak came in early October after additional threats of Chinese export controls and before Trump's meeting with Xi.

Shares enter the week at about $62, up about 300% this year. The stock soared after the Defense Department announced an agreement with MP to expand domestic production of rare earth materials. The deal includes an equity stake, price floor mechanism, and a guaranteed customer for rare earth magnet capacity MP is building.

Along with MP, the federal government has announced rare earth cooperation agreements with Australia and Japan, all designed to break the Chinese monopoly.

It will take years to achieve rare earth independence. Between now and then, investors will have to pay close attention to everything from mining progress to geopolitics.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.