Flexing its Muscles: China's Zero Rare Earth Exports Rattle Global Markets
Export of Rare Earth Metals Declines to Zero Levels
The dragon is stirring! China, the global kingpin of critical minerals, has tightened its grip on rare earths, a key component for electric vehicles, wind turbines, and other high-tech products. Matthias Rueth, CEO of Tradium, one of Germany's leading traders in special metals, warns, "The supply situation could deteriorate at any time."
Just a few weeks after China imposed stringent export licenses on seven irreplaceable minerals, the global supply chain is feeling the heat. In the trade war with the US, Beijing unleashed its ultimate weapon in April by restricting exports of these minerals. The extent of the impact remained uncertain as no one knew how the bureaucratic barriers would be implemented.
However, it's clear now: "China is flexing its muscles," says Rueth. "Chinese customs have been blocking shipments, including ours, since early April, and no one knows how long this situation will last."
According to data from China's customs authority, exports of terbium and dysprosium – two of the seven restricted minerals – plunged to zero in May. Exports of finished rare earth magnets also nose-dived by three-quarters in May compared to the previous year. The US, a major importer, saw a drop of over 90% in its supplies.
China's move has cut off Washington's supplies for permanent magnets, essential for electric motors, drones, missile bodies, speakers, hard drives, and smartphones. Some automakers and suppliers in the US, Japan, and Germany have already shut down production lines due to the shortage.
America's Achilles' Heel
The export ban is Beijing's biggest leverage in its trade dispute with Donald Trump. Facing the threat of exports drying up, China and the US agreed on a 90-day truce in May through secret talks in Geneva. However, this ceasefire seems precarious, with both sides agreeing in June in London, following two days of intense negotiations, on a framework agreement. The agreement promised that whole magnets and all necessary rare earths would be pre-supplied by China. Yet, the surety remains elusive.
Germany is among the largest customers worldwide for these rare earth magnets, with exports standing at 209 tons in May. China, however, is the overlooked colossus, controlling nearly the entire production of these irreplaceable metals. The rest of the world's production amounts to mere 5%, according to Ruth.
Yet, there's a silver lining: Some easing measures have emerged, such as Volkswagen managing to secure export licenses for supplying permanent magnets from China after approaching the government in Beijing. Additionally, the data provided by China's customs authority might not be fully reliable, as it may reflect the status before the US and China agreed on a trade war truce.
The Looming Threat
Despite these developments, the threat looms large. Many automakers may not be able to stock up on rare earths in China. Ruth reports receiving requests from car manufacturers and suppliers in recent weeks. "The supply situation might improve, but we're not out of the woods yet," he cautions.
The duration of the truce with China remains uncertain. While China has confirmed that both sides have agreed on the details of the framework agreement, the announcement from the Ministry of Commerce does not mention rare earths explicitly. This leaves ample room for maneuver, allowing China to cut off supplies at any time.
Moreover, the export licenses promised by China to the US in London are valid only for six months, according to the "Wall Street Journal." Trump has approved the deal, but Xi Jinping has not. Until Xi signs off, the supply crisis will persist.
Fortress China
China's export restrictions on rare earths underscore its political claim to be recognized as a resource power. Despite potential Slowdowns in the processing of export applications, China is likely to maintain its export controls, given the strategic advantage it holds. companies worldwide are reconsidering their sourcing strategies, with the possibility of accelerated efforts to diversify supply chains or develop alternative materials outside China. Overall, China's grip on rare earths will continue to shape the global tech landscape for the foreseeable future.
- The sudden drop in exports of terbium, dysprosium, and finished rare earth magnets from China has raised concerns within the European community, given Germany's reliance on these materials for high-tech products like electric vehicles and wind turbines.
- Amidst the global impact of China's zero rare earth exports, sports organizations worldwide might experience unanticipated challenges, as temporary supply shortages could affect components used in sports equipment manufacture, such as permanent magnets for electric motors in electric bicycles and racing cars.
