(Reuters) – China’s export restrictions on rare earths have halted parts of the global automotive supply chain and brought US President Donald Trump to the negotiation table. But at home, they are a major headache for businesses that are already struggling with the slow economy.
Beijing suppressed rare earth and magnet exports in retaliation against US tariffs in April, simultaneously driving offshore sales for magnet manufacturers, facing weak economy and pressure from tough times in one of its major markets, EVS.
Even after the US announced on June 27 that it had signed a contract to flow again with China, it is unlikely that the magnet maker’s pain will soon be relieved.
In a WeChat post 12 hours after the contract was announced, noting that inventory is piled up in warehouses, Baotou Rare Earth Products Exchange, a state-backed trading platform, said it would take time to implement the contract.
Export curbs were forced to suspend production by several global automakers after magnet exports fell 75% two months after restrictions were imposed.
The restrictions caused a “crisis” for Baotou Exchange, a local magnet manufacturer based in Inner Mongolia, one of China’s rare earth hubs.
China produces 90% of rare earth magnets used worldwide and consumes most of them, but exports ranged from 18% to 50% of total revenue in 2024, among 11 magnet producers published by capacity by capacity.
“Their sales are now squeezed from both ends — disrupting exports and flagging domestic demand,” said Ellie Sakuratobara, director of metal prices at Argus, product information provider.
“They temporarily lost a key part of their customer base, but we’re not sure when they’ll get it back.”
Rare Earths are politically sensitive in China, and few major rare earth companies have commented directly on how control affects their business.
However, the two rare earth magnet producers said Reuters revenue is expected to decline this year and they will speak on the condition of anonymity considering the sensitivity of the issue.
“It will have a major impact on the export business, but it is difficult to tell exactly how much loss we will suffer for now,” said one rare earth magnet producer who has requested anonymity due to the sensitivity to the issue.
Small and medium-sized producers reduced their production by about 15% in April and May.
Exports underestimated curb impact
Just like US chip maker Nvidia, Chinese rare earth magnet makers are victims of their own importance.
The stock price of the magnet maker listed in April was destroyed after being caught up in a geopolitical crossfire of Washington’s tariffs and Chinese retaliation. But they have climbed their lowest for the past three months.
The rebound does not appear to be based on reasonable forecasts for the industry’s future, said Corey Combs, director of key mineral research at Consulting Tribium China.
“I can see a variety of market outlooks that are more or less negative depending on the assumption, but nothing will result in a sustainable rise in stock prices as we see,” he said.
He said that many magnet makers are private as well, so stock prices are only limited.
Many producers are already facing weaknesses at home, including a price war between electric car manufacturers, the main customer segment where manufacturers demand discounts from suppliers.
Furthermore, the highly customized nature of many magnetic products makes it difficult to resell cargo domestically, and four sources also spoke anonymously, forcing magnet makers to store them while waiting for their license.
Challenges can spur integration
Listed magnet maker Baotou Tianhe Magnetics Technology Co, noted the export curbs in its annual report released in late April, saying export revenue could fall if the international situation worsens.
Yantai Zhenghai Magnetics received its export license last week and said production was normal. We introduced investors to future financial applications for specific business outcomes.
However, according to Argus’ Saklavala, a rapid return to the previous status quo is rare when rare earth controls are implemented in a similar manner to other important minerals, including germanium and antimony.
China imposed export controls for germanium and antimony between 2023 and 2024. Despite being used primarily by private industries, there is little theoretically a problem of getting licenses, but exports have yet to fully recover, customs data shows.
Europe only receives a small portion of antimony imported from China before export control was imposed last September. The shortage has already caused major problems for lead-acid battery manufacturers, commonly seen in gasoline engines.
“Looking at recent export controls on other important minerals such as antimony, it is clear that exports can take longer than expected for them to resume and normalize,” added Saklatvala.
David Abraham, an affiliate professor at Boise State University in Idaho, said the bulk of information needed by export licensing authorities is a permanent change for the industry that adds delays and costs to producers.
“In a way, I’m not going back,” he said.
In an industry with hundreds of manufacturers, he said pressure could lead to integration.
“I don’t know if Beijing thinks it’s a bad thing, because further integration will help us control and understand where the materials go.”
(Reporting by Reuters staff, edited by Louis Jackson and Sonari Paul)
