In July 2023, China announced it would impose new export restrictions on gallium and germanium. This decision is a big change from its previous push to open more critical mineral resources to mining. Over the next two years, the country broadened these restrictions to cover materials such as antimony and graphite and other essential alloys. This action comes as China tightens its grip over the world’s supply of heavy rare earth elements. It’s currently the only place on the planet that processes even close to 100% of the world’s supply. These unnecessary limitations have significant impacts. Countries such as the United States and Canada are grappling with how much they will continue to depend on these valuable commodities.
China’s recently introduced comprehensive export licensing program encompasses seven rare earth elements: samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. These elements make up what are known as the “heavy” rare earth minerals. They are fundamental for high-tech applications such as EVs, renewable energy technologies and advanced electronics. For decades, China has had a stranglehold. Today, the international community is looking critically at their policies and taking concrete steps to look for alternatives.
China’s Monopoly on Heavy Rare Earths
China’s almost complete monopoly on heavy rare earth production gives it enormous leverage over the production of other strategic and critical minerals down the supply chain. The country has had a long tradition of processing these minerals. This significant head start creates a deep moat that is difficult for other countries to surmount.
“China processes pretty much 100 percent of the world’s heavy rare earths, which means that they don’t just have a comparative advantage, they have an absolute advantage.” – Gracelin Baskaran
The ramifications of this monopoly are profound. Last year, the U.S. imported nearly $170 million worth of rare earth elements. That left a number of provisions, some of which China has not yet banned. After China recently implemented aggressive export controls, companies that rely on these materials are now left scrambling to source them.
Despite these worries, the market response has been limited so far. In fact, excluding the immediate reaction to the announcement of the export restrictions, prices have barely budged upward. That means firms are drawing down their supply of semi-finished goods to meet their needs.
Market Reactions and Strategies
As companies navigate these new export controls, many have turned to firms with existing private stockpiles of rare earth elements. This change has led to a rapid rise in prices as traders whittle through their stocks to meet demand.
“There is a very steep increase in prices to draw down on stockpiles right now.” – Gracelin Baskaran
As with today’s market realities, experts warn that the success of China’s export controls largely relies on the way in which they are enforced. According to Ian Lange, an associate professor of economics and business, the timing couldn’t be more critical. China only has one shot to get its controls right. If so, these policies have the potential to make both U.S. governmental and private mineral refining strategies a more attractive proposition.
Lang says these ramifications could include a greater push towards domestic mining of rare earths, or a decreased reliance on rare earths in general. He stated, “It’s like bending down to pick up a nickel,” highlighting how the perceived value of maintaining the status quo may not be worth the effort if alternative solutions emerge.
A Potential Shift in Global Supply Chains
Renewed international tensions over China’s export restrictions might be what it takes to make this the turning point for the world’s rare earth supply chains. Countries such as the U.S., Canada, Australia and many European nations have already begun searching for ways to establish domestic production. This has fueled an increasing desire to reshore mineral refining industries.
“But I do think we are maybe starting to turn the corner, where China’s market share may be peaking … and you are starting to see a resurgence of interest in these industries in Northern Europe, Australia, Canada, the US, and Latin America.” – Wang
Experts are of the opinion that countries can counter China’s de facto monopoly by significantly increasing their domestic mining capabilities. Or, they could look for other ways to procure these minerals.
Today, countries are rethinking their reliance on rare earth elements. As they continue to invent and explore alternative methods to safeguard these critical assets, the dialogue surrounding China’s export policies will continue to grow and change.
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