By William Clarke and Cristina Belda
Recent hints that emerged from Beijing about possible
restrictions on exports of rare earths appeared to be good news
for non-Chinese producers, but any limitations would only harm
China’s dominance of the rare earth market,
informed sources have told Fastmarkets.
There is widespread skepticism about whether China would be
able to reduce the global supply of rare earths, even if it
were willing to do so.
"Throwing your weight around can have adverse effects," said
Christopher Ecclestone, mining strategist at New York-based
investment bank Hallgarten & Co. Even the suggestion of
restrictions has boosted interest in rare earth companies, he
"The dogs of the rare earth industry have woken from their
slumber, and have started yapping," he said.
There has been no official threat of a rare earth export
ban, but several heavy-handed hints have been dropped by the
Beijing government. On May 21, Chinese President Xi Jinping
visited a company that makes rare earth magnets shortly after
the United States blacklisted Chinese technology firm
The East Asian country’s National Development
& Reform Commission recently warned that "if anyone wants
to use products made from rare earth to curb the development of
China, then the people of the revolutionary soviet base and the
whole Chinese people will not be happy."
And the editor of state-owned, English-language newspaper
Global Times has been vocal on social media about the
prospect of restrictions on rare earth exports.
There have been signs that traders at least are paying some
attention to these threats.
One rare earth trader warned Fastmarkets that "history has
shown us that China can use rare earths supply as a weapon if
it feels threatened."
The threat of a rare earth export embargo is not new. In
2010, China attempted to cut off rare earth exports to Japan
after a dispute over the ownership of a group of islands in the
East China Sea, which sent prices briefly surging upward.
There is also evidence that some traders are trying to build
up stocks, in anticipation of a rising market.
"Chinese companies recently approached us to buy rare
earths, and this is quite extraordinary since China is not
really a buyer," a European rare earths and minor metals trader
said. "This situation [with Chinese producers trying to
purchase material] has only happened once or twice in the past
The motivations for this move were not yet clear and,
according to the trader, it could be "for strategic
But traders were holding on to stocks and forecasting an
escalation in international trade tensions.
"We are not selling rare earths at the moment… we
will hold our stocks," the European trader said. "We are taking
a wait-and-see approach."
The lesson to be taken from the 2010 export restrictions is
that Chinese dominance of the rare earth market is vulnerable.
The 2010 restrictions caused a massive increase in rare earth
prices, but triggered a similarly rapid increase in the
production of rare earths outside China.
The increase in prices allowed Australian producer Lynas,
with some Japanese backing, to set up a major rare earth
separation plant outside China, and briefly breathed new life
into US domestic rare earth production in the state of
And history is already showing signs of repeating. Lynas was
quick to capitalize this year, announcing plans to build a
heavy rare earth separation plant in the US shortly after the
materials returned to the political agenda.
The fact is that China has no monopoly on the mining of rare
earths. There are a number of rare earth mining projects in
production worldwide at the moment, and a larger number of
mothballed or junior projects which could quickly return to
production in the right circumstances.
The bottleneck is not in production but in refining
capacity, where mixed rare earth oxides are separated into
different elements. In particular, there is a stark shortage of
refining capacity for the heavier rare earth elements, which
includes the rarest and most valuable types.
Rare earths are not created equal. The various elements in
the rare earth group vary widely in value, rarity and ease of
substitution. Most of China’s exports to the US
are of cerium and lanthanum - "throwaway rare earths," as
Hallgarten’s Ecclestone puts it.
These materials are both relatively abundant, and available
from sources other than China.
The most rapid increase in rare earth demand has been for
the magnet minerals. Rare earth permanent magnets are used in
electric motors and windmill turbines. Of these magnet
minerals, the light rare earths neodymium and praseodymium are
the most commonly used, and can be sourced from
Lynas’ separation facility in Malaysia.
But supplies of the heavy rare earth minerals dysprosium and
terbium are less easy to source. These minerals are included in
neodymium/praseodymium magnets to increase their
Production of these minerals is heavily concentrated in
China. Australian miner Northern Minerals produces rare earth
carbonate with a high proportion of dysprosium and terbium, but
it currently ships its production to China to be separated.
This combination of rising demand and limited supply makes
dysprosium unusually vulnerable to politically motivated export
In the longer term, the vulnerability of electric-vehicle
(EV) manufacturers to constraints on dysprosium supply could be
tackled by reducing its use in magnets. Japanese carmaker
Toyota has already unveiled plans to eliminate the use of
dysprosium and terbium.
It is also possible to build electric vehicles that use
electromagnets instead of permanent magnets. But this increases
the overall power consumption of the engine, which in turn
means that larger batteries are needed, and more lithium and
cobalt are consumed.
The technical barriers to substituting electric magnets in
EVs are so difficult that no manufacturer currently tries to do
so. Even sector pioneer Tesla uses rare earth magnets in its
latest product line, after years of resisting their
And although Lynas is proposing the creation of a new heavy
rare earth separation plant in the US, there would be a lag
before any new capacity comes online.
'Huffing and puffing’
A more significant question is whether China actually has
the ability to close off supplies to the US.
First, the US does not have a large domestic EV industry,
and no domestic rare earth magnet capacity. As Ecclestone
points out, it would be very hard for China to prevent
domestically produced magnets which were exported to Japan or
Europe being re-exported into the US.
And the prevention of smuggling would be extremely difficult
because of the high values and small volumes of rare earths
exported from China.
One European minerals distributor told Fastmarkets that
"even if there is an export embargo… they can sell it
illegally through Shenzhen [the southeast Chinese city adjacent
to the trading outlet of Hong Kong]."
The distributor also noted a recent appearance on US
television by a Chinese journalist as evidence that
China’s interests lie in cooling the trade war,
rather than inflaming it.
On May 29, Liu Xin, a journalist for the state-run China
Global Television Network, appeared in an English-language
interview on the US television channel Fox News, a favorite of
US President Donald Trump. Liu rebutted some of the
interviewer’s comments on trade relations between
the US and China, but struck a noticeably conciliatory tone,
agreeing that low tariffs would be best for both countries.
The European distributor said that this interview showed
that the Chinese had been forced to "try and change the
thinking within America," and that any threats on rare earth
export restrictions were hollow.
"If it was a real threat, why would you have Liu Xin going
on TV [and speaking] in English?" he said. "It
wasn’t aimed at the Chinese audience. The Chinese
are at their wits end about negotiating with Trump. Everything
he’s asking is impossible for them. They
haven’t got anything to bargain with.
It’s all huff and puff."
Ecclestone agrees that any increase in rare earth prices
would be short-lived. "We could see tightness, disruption,
higher prices," he said, adding that any increase would be most
noticeable in dysprosium, neodymium and praseodymium.
But he says that any price rally would not match the
feverish levels seen in 2010. "I think people have a better
idea now," he said.
And in the long term, he added, China had the most to lose.
"The worst nightmare for the Chinese is a non-Chinese rare
earth supply chain," he said. "That would mean 'game