Analysis-China’s rare earth export controls are good for Beijing, bad for business

China’s export restrictions on rare earths have had a significant impact on the global auto supply chain and have even brought U.S. President Donald Trump to the negotiating table. However, at home, these restrictions are posing a major challenge for companies that are already grappling with a sluggish economy.

In April, Beijing imposed curbs on rare earth and magnet exports in retaliation against U.S. tariffs, leading to a decline in magnet makers’ offshore sales. This comes at a time when these companies are facing pressure from a weak economy and a challenging market for electric vehicles (EVs).

Despite the announcement of a deal between the U.S. and China on June 27 to resume rare earth exports, the situation is unlikely to improve quickly. The Baotou Rare Earth Products Exchange, a state-backed trading platform, noted that inventory was piling up in warehouses following the deal’s announcement, indicating that it will take time to implement any agreement.

The export restrictions resulted in a 75% drop in magnet exports in the two months after they were imposed, causing several global auto makers to halt production. The Baotou exchange described the situation as a “crisis” for local magnet makers in Inner Mongolia, one of China’s rare earth hubs.

While China produces 90% of the rare earth magnets used worldwide, exports account for a significant portion of revenue for many magnet producers. The disruption in exports, coupled with weakening domestic demand, has put these companies in a difficult position.

According to Ellie Saklatvala, head of metal pricing at Argus, magnet makers have lost an important part of their customer base with no certainty about when they will regain it. The impact of the export curbs has been underestimated, with some rare earth magnet producers expecting a decline in revenue this year.

The challenges facing magnet makers may lead to consolidation in the industry. The export controls on rare earths could have a lasting impact similar to those imposed on other critical minerals like germanium and antimony, which have seen slow recovery in exports.

David Abraham, an affiliate professor at Boise State University, predicts that the industry may see further consolidation as a result of the pressures caused by the export restrictions. This could be beneficial for controlling the flow of materials and understanding where they are being directed.

In conclusion, the export restrictions on rare earths have had far-reaching consequences for magnet makers in China, impacting both their domestic and international operations. The road to recovery may be long and challenging, with potential implications for the future of the industry as a whole.