RETURNS for investors in Chinese rare earths stocks are looking anything but scarce.

Investors are piling into the sector on speculation that China is mulling restricting exports of the materials to the United States. President Xi Jinping’s visit to a rare earth facility in Jiangxi last week fueled an initial rally, with shares surging again yesterday after a slew of Chinese media reports advocated the threat of using rare earths as retaliation against the United States.

Analysts say domestic producers are the big winners as any curb may boost rare earth prices enough to counter a decline in demand. JL Mag Rare-Earth Co., the plant Xi visited, climbed by the 10 percent daily limit for the seventh time in eight trading sessions. Other companies also posted strong gains, with China Northern Rare Earth Group High-Tech Co. adding 8.68 percent and Xiamen Tungsten Co. advancing 3.79 percent.

“Prices and margins rising as a result of a decrease in supply would far outweigh the impact of a dent in demand from the United States,” said Wang Daixin, fund manager at Bristlecon Pine Asset Management Ltd. in Guangzhou. “I don’t think the price moves in the sector are anything near rational by this point.”

Rare earths are the latest focus of the escalating trade spat after China raised tariffs to 25 percent from 10 percent on American imports, while the United States excluded the materials from its own list of prospective tariffs. Xi’s visit to Jiangxi and this week’s salvo of media reports have been seen by some investors as a sign that China could be preparing to impose curbs on exports to the United States and bolster its domestic industry.

The People’s Daily yesterday said in a commentary that the United States shouldn’t underestimate China’s ability to fight the trade war. The country is seriously considering restricting rare earth exports to the United States, the editor-in-chief of the Global Times said in a tweet. An official at the National Development & Reform Commission told CCTV that people in the country won’t be happy to see products made with exported rare earths being used to suppress China’s development.

The United States relies on China for about 80 percent of its imports of rare earths, the group of materials that are used in everything from electric cars to high-tech military equipment. Rare earths, which include elements such as cerium and dysprosium, are relatively abundant in the Earth’s crust but mine-able concentrations are less common than other ores.

China produces about 70 percent of the world’s mined rare earths and its industry is dominated by a handful of producers including China Northern Rare Earth, China Minmetals Rare Earth Co., Xiamen Tungsten and Chinalco Rare Earth & Metals Co. Some of the country’s listed rare earths stocks are small caps, making them easy targets of speculation.

“It’s unlikely that China will impose a total ban on rare earth exports to United States, but it can boost the prices of the resources by imposing stricter production quotas at home,” said Dai Ming, a Shanghai-based fund manager with Hengsheng Asset Management Co.

“It won’t hurt demand much as the materials are irreplaceable in some high-tech industries, meaning the United States will just have to stomach the higher costs. No matter what kind of curbs China will consider on rare earths, domestic miners would be the biggest winners.”

Producers may also benefit from a rise in rare earth prices after China was reported to have halted imports of rare earth ore from Myanmar on in mid-May.

CICC said companies that are set to benefit from rising prices include China Northern Rare Earth, Rising Nonferrous Metals Share Co. and permanent magnet makers like Ningbo Yunsheng Co., Beijing Zhong Ke San Huan High-Tech Co. (SD-Agencies)