On April 4, China imposed new export controls on seven rare earth elements: samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. Companies will need to secure special export licenses for these minerals, and for magnets containing them.
This week, US president Donald Trump ordered an investigation into the country's reliance on critical minerals, including rare earth elements.
The steady ratcheting up of tensions has reawaken speculation that China may be ready to deploy its most feared weapon in the trade war, a complete ban on all rare earth exports.
Unsurprisingly, rare earth juniors have been quick to talk up this possibility, as they enjoy another moment in the sun.
But although a Chinese rare earth ban would have massive and far-reaching effects on global supply chains, it is a bazooka that can only be fired once.
Gallium test run
The restrictions put on the seven rare earths are the same that China placed on gallium and germanium in 2023.
The effects of that move were instructive. There was an immediate halt in exports as new paperwork requirements were implemented. This drove a short term in share prices for any company that could claim a tangential relationship to gallium production.
But new projects failed to deliver, and eventually prices eased back down as exports resumed under the new regime.
A more stringent ban on gallium and germanium, along with antimony and super-hard materials was implemented in late 2024. This measure directly targeted the US. The effect on gallium and germanium supplies was limited. It did, however, trigger a massive rally in antimony markets.
The key difference is that while China has ample supplies of gallium and germanium for its own purposes, antimony supplies are genuinely tight.
This is a key, and often overlooked, factor in China's critical mineral policy: the key priority for Beijing is the support of its own domestic manufacturing industries.
There is no doubt that stringent export curbs could be put in place on rare earths if the domestic supply situation in China becomes constrained. But while supply is ample, and prices are low, the incentive is to keep exporting.
An export ban on rare earths would push domestic prices even lower, threatening the long-term viability of the industry, and potentially threatening access to the raw materials in the future.
The lessons of 2010
But what of the geopolitical effect? Are rare earths really China's trump card in the trade war? The truth is China tried that move once before. In 2010, in the wake of a political dispute with Japan over ownership of the uninhabited Senkaku islands, Beijing stalled rare earth exports to Japan.
At the time the supply chain of these metals was much less understood, and the result was panic in the market, soaring prices, and a slew of rare earth juniors briefly enjoyed a bull run for their share prices.
In the end, only one new mine came out of it: Lynas' Mt Weld mine in Australia, with a processing plant in Malaysia.
This project, heavily backed by Japan's Sojitz, was the first major rare earth project outside China. Thanks to Mt Weld, Japan is now the least reliant on Chinese rare earths of any developed economy.
Time waits for no mine
Rare earth doom-mongers often point to the amount of time that it takes to build a new mine. If the US had to build an entire mine-to-market rare earth supply chain from scratch the road would indeed be a long one. But in reality there are many sources of rare earths that could be tapped without building a new mine.
Mountain Pass in California and Mt Weld in Australia are both very large resources that could be quickly scaled up. The real bottleneck for output from these projects is not mining by processing. Ramping up non-Chinese rare earth processing would be a challenge, but with the right funding it would be much quicker than building a new mine.
Most rare earths arriving in the US do not come in their raw forms but are incorporated into electronics and other consumer goods.
The vast majority of these products are then disposed of or shipped abroad for recycling. Higher rare earth prices would incentivise recycling, unlocking an ample supply of rare earths for domestic use.
Then there are mineral sands. Heavy mineral sand resources are frequently rich in monazite. This rare earth ore is mined alongside ilmenite, zircon, and other minerals. But due to its thorium and uranium content, monazite is radioactive, making it expensive to handle and process. Most monazite found in mineral sand deposits is either returned to the ground as tailings, or shipped to China for processing.
Previous rare earth market jitters have already spurred miners to examine the possibility of processing their own monazite.
Iluka is developing a rare earth processing facility at its Eneabba mineral sand mine, to process monazite tailings. And US uranium producer Energy Fuels last year merged with Base Resources, with the intention of processing the latter company's monazite as a rare earth and uranium feedstock.
New supplies
The key problem with using rare earths as a bargaining chip is that most buyers are extremely price insensitive.
At current prices, the cost of the NdPr and dysprosium used to make a magnet for use in and EV engine is only a few dollars, a negligible input compared to the cost of turning those metals into a magnet, let alone the final retail price of the car.
A tenfold rise in rare earth prices would have almost no noticeable effect on the price of EVs in the US, but it would unlock a host of new rare earth sources, from recycling, tailings processing, and eventually greenfield mines.
Chinese rare earth companies have had a massive head start in processing and metallurgical expertise.
But although rare earth processing is time consuming and costly, it is not scientifically complicated. The challenge is not how to separate rare earths (any chemist could do that in a laboratory) it is how to do it at scale in a profitable manner.
Higher rare earth prices would increase the margin of error on that process. Once a domestic rare earth supply chain has been built up the US would rapidly catch up with China.
None of this is to downplay the real economic effects that a rare earth shortage could have in the US. But such a shortage would only last for so long. And when the market rebalanced, through demand destruction, substation, recycling, and new mines, China's stranglehold on the market would be broken.
MJ COMMENT
Rare earths: Beijing's one-shot bazooka
Turning off the rare earth tap would be a great trick; but China can only do it once
Lynas' rare earth production | Credits: Lynas
On April 4, China imposed new export controls on seven rare earth elements: samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. Companies will need to secure special export licenses for these minerals, and for magnets containing them.
This week, US president Donald Trump ordered an investigation into the country's reliance on critical minerals, including rare earth elements.
The steady ratcheting up of tensions has reawaken speculation that China may be ready to deploy its most feared weapon in the trade war, a complete ban on all rare earth exports.
Unsurprisingly, rare earth juniors have been quick to talk up this possibility, as they enjoy another moment in the sun.
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But although a Chinese rare earth ban would have massive and far-reaching effects on global supply chains, it is a bazooka that can only be fired once.
Gallium test run
The restrictions put on the seven rare earths are the same that China placed on gallium and germanium in 2023.
The effects of that move were instructive. There was an immediate halt in exports as new paperwork requirements were implemented. This drove a short term in share prices for any company that could claim a tangential relationship to gallium production.
But new projects failed to deliver, and eventually prices eased back down as exports resumed under the new regime.
A more stringent ban on gallium and germanium, along with antimony and super-hard materials was implemented in late 2024. This measure directly targeted the US. The effect on gallium and germanium supplies was limited. It did, however, trigger a massive rally in antimony markets.
The key difference is that while China has ample supplies of gallium and germanium for its own purposes, antimony supplies are genuinely tight.
This is a key, and often overlooked, factor in China's critical mineral policy: the key priority for Beijing is the support of its own domestic manufacturing industries.
There is no doubt that stringent export curbs could be put in place on rare earths if the domestic supply situation in China becomes constrained. But while supply is ample, and prices are low, the incentive is to keep exporting.
An export ban on rare earths would push domestic prices even lower, threatening the long-term viability of the industry, and potentially threatening access to the raw materials in the future.
The lessons of 2010
But what of the geopolitical effect? Are rare earths really China's trump card in the trade war? The truth is China tried that move once before. In 2010, in the wake of a political dispute with Japan over ownership of the uninhabited Senkaku islands, Beijing stalled rare earth exports to Japan.
At the time the supply chain of these metals was much less understood, and the result was panic in the market, soaring prices, and a slew of rare earth juniors briefly enjoyed a bull run for their share prices.
In the end, only one new mine came out of it: Lynas' Mt Weld mine in Australia, with a processing plant in Malaysia.
This project, heavily backed by Japan's Sojitz, was the first major rare earth project outside China. Thanks to Mt Weld, Japan is now the least reliant on Chinese rare earths of any developed economy.
Time waits for no mine
Rare earth doom-mongers often point to the amount of time that it takes to build a new mine. If the US had to build an entire mine-to-market rare earth supply chain from scratch the road would indeed be a long one. But in reality there are many sources of rare earths that could be tapped without building a new mine.
Mountain Pass in California and Mt Weld in Australia are both very large resources that could be quickly scaled up. The real bottleneck for output from these projects is not mining by processing. Ramping up non-Chinese rare earth processing would be a challenge, but with the right funding it would be much quicker than building a new mine.
Most rare earths arriving in the US do not come in their raw forms but are incorporated into electronics and other consumer goods.
The vast majority of these products are then disposed of or shipped abroad for recycling. Higher rare earth prices would incentivise recycling, unlocking an ample supply of rare earths for domestic use.
Then there are mineral sands. Heavy mineral sand resources are frequently rich in monazite. This rare earth ore is mined alongside ilmenite, zircon, and other minerals. But due to its thorium and uranium content, monazite is radioactive, making it expensive to handle and process. Most monazite found in mineral sand deposits is either returned to the ground as tailings, or shipped to China for processing.
Previous rare earth market jitters have already spurred miners to examine the possibility of processing their own monazite.
Iluka is developing a rare earth processing facility at its Eneabba mineral sand mine, to process monazite tailings. And US uranium producer Energy Fuels last year merged with Base Resources, with the intention of processing the latter company's monazite as a rare earth and uranium feedstock.
New supplies
The key problem with using rare earths as a bargaining chip is that most buyers are extremely price insensitive.
At current prices, the cost of the NdPr and dysprosium used to make a magnet for use in and EV engine is only a few dollars, a negligible input compared to the cost of turning those metals into a magnet, let alone the final retail price of the car.
A tenfold rise in rare earth prices would have almost no noticeable effect on the price of EVs in the US, but it would unlock a host of new rare earth sources, from recycling, tailings processing, and eventually greenfield mines.
Chinese rare earth companies have had a massive head start in processing and metallurgical expertise.
But although rare earth processing is time consuming and costly, it is not scientifically complicated. The challenge is not how to separate rare earths (any chemist could do that in a laboratory) it is how to do it at scale in a profitable manner.
Higher rare earth prices would increase the margin of error on that process. Once a domestic rare earth supply chain has been built up the US would rapidly catch up with China.
None of this is to downplay the real economic effects that a rare earth shortage could have in the US. But such a shortage would only last for so long. And when the market rebalanced, through demand destruction, substation, recycling, and new mines, China's stranglehold on the market would be broken.
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