China's monopoly on rare earth metals is not under any threat

Even as China signals it may issue more export permits for Europe and the United States, its tight grip on rare earth metals looks unlikely to loosen anytime soon, analysts warn.

Three companies listed in Shenzhen announced this month that Beijing had approved their applications to ship magnets made with rare earths, elements essential for electric cars, defense systems, semiconductors, and other high-tech goods. Yet Baotou INST Magnetic New Materials cautioned in May that its permit covers only a single shipment.

In Europe, car-industry groups note that China’s long-term licenses for magnets and heavy rare earths run out after just six months.

CNBC reported that cutting dependence on China will be “extremely difficult,” and any gains are likely to be small and slow, according to a Tuesday note by Rico Luman, senior sector economist for transport and logistics at ING.

China produces about 60% of the world’s rare earths and handles nearly 90% of processing, meaning it imports ores from abroad and refines them at home.

“Europe currently produces no rare earths, and the U.S. has only recently begun small-scale output of neodymium and praseodymium. Both lack the reserves needed to ramp up fast,” Luman wrote.

Already this summer, several European automakers and U.S. tech firms operating in China have halted production lines or warned of part shortages. In early April, Beijing placed export controls on seven rare earths, following a series of tighter rules over the past two years on many critical minerals.

Washington had hoped that the April curbs would be rolled back after a 90-day tariff pause agreed in mid-May. After trade talks in London this week, U.S. officials said Chinese authorities will soon allow more rare earth exports.

Volatility persists in rare earth market

A commerce ministry spokesman said Thursday that China has approved “a certain number” of licenses for rare earths and related products and will step up review of new requests. But business leaders say market conditions remain shaky.

Volatility is still high, said Philippe Kehren, CEO of Solvay’s chemicals unit, which runs the largest rare earths processing plant outside China, in La Rochelle, France.

To cope, Solvay is turning to recycled sources and exploring other suppliers. “I think the best mitigation in this type of circumstance is indeed to master the technology,” Kehren said. The company hopes to meet 30% of Europe’s demand for processed rare earths used in permanent magnets by 2030.

Dennis Wilder, a former senior White House intelligence official, warned that if Washington introduces fresh curbs, China could reinstate strict export rules. Gabriel Wildau of risk consultancy Teneo agreed, saying that even with hints of relief, “supply cutoffs remain an ever-present threat.” By making its licensing system permanent, Beijing can block stockpiling by foreign firms and preserve its negotiating edge.

Automakers shift to rare earth-free EVs amid supply uncertainty

“Firms now have no choice but to invest in and develop alternative sources, substitutes, and re-export solutions to hedge against the risk of a supply loss from China” said Matt Gertken, senior vice president at BCA Research.

Yet the Chinese chokehold on the wider supply chain runs deep. A 2019 U.S. Congressional report found that Chinese mines account for 68% of the world’s graphite for batteries, refine 60% of its lithium and process 72% of its cobalt.

In response, automakers such as General Motors and BMW, along with major suppliers, have begun making electric vehicles that use little or no rare earths. But few have driven down costs enough to compete broadly. Automakers will need to “operate two ecosystems: one exclusively for China in China, and one outside of China,” said Lei Xing, an independent analyst of China’s auto sector.

Late last year, Beijing extended export rules on civilian items that could have military uses, applying them to all foreign customers. In February, China also capped exports of five critical minerals, including tungsten—a hard metal used in cutting tools, weapons and semiconductors. Today, China controls 80% of the global tungsten chain.

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