Chinese exporters crushed under the weight of rare earth export controls

China’s dominance in the rare earth supply chain has historically given it leverage over global markets. Its recent export restrictions, however, are having a lasting negative effect on the sector. Chinese magnet producers are now facing piling inventories while also dealing with a failing economy and weakened EV demand. 

China’s rare earth export restrictions, which were implemented in April as a retaliation against U.S. tariffs, have dealt a heavy blow to the country’s domestic magnet manufacturers, many of whom were already contending with a weak economy and declining demand for electric vehicle (EV) makers.

Rare earth magnets are essential for electric vehicles, wind turbines, and a host of other high-tech applications, and China produces around 90% of the world’s supply.

Chinese exporters crushed under the weight of rare earth export controls

Public filings from the 11 largest listed Chinese magnet producers show that exports accounted for 18% to 50% of their 2024 revenues, which shows the sector’s reliance on international customers.

The short-term fallout has been severe on the industry. Magnet exports have dropped by 75% within two months of the restrictions, and some global automakers were also forced to pause production.

In the meantime, inventory was piling up in domestic warehouses as producers waited on export licenses, according to Baotou Rare Earth Products Exchange, a state-backed trading platform.

“Their sales are now being squeezed from both ends—disrupted exports and flagging domestic demand,” Ellie Saklatvala, the head of metal pricing at Argus, said.

Some small and mid-sized producers responded by cutting production by 15% in April and May, according to industry insiders. But for many, this was not enough to stave off what the Baotou exchange described as a “crisis” for local magnet makers.

Long-term uncertainty despite rare earth control easing

Even though the U.S. and China announced a deal on June 27 to reverse the export restrictions, the damage has already been done.

The Baotou Rare Earth Products Exchange warned that any resumption of normal export activity would take time, stating that inventory levels remain high and licensing requirements continue to delay shipments.

“Looking at China’s recent export controls on other critical minerals—such as antimony—it is clear that it can sometimes take longer than expected for exports to resume and normalise,” Argus’ Saklatvala said.

Export curbs on germanium and antimony imposed in 2023 and 2024 still haven’t fully recovered. Europe is still receiving only a fraction of the antimony volumes seen before the controls. This has already impacted lead-acid battery production, particularly in the automotive sector.

In the case of rare earths, the challenge is compounded by the specialized nature of magnet products. Many of them are tailor-made for specific clients and cannot be easily resold within China, forcing companies to store finished goods while they await the necessary licenses.

Four industry sources told Reuters that the licensing process was both opaque and burdensome, further complicating the recovery efforts.

“In some sense, there’s no going back,” David Abraham, an affiliate professor at Boise State University, said. “The large amounts of information now required by licensing authorities represent a permanent change for the industry and will add delays and costs for producers.”

Baotou Tianhe Magnetics Technology Co. noted in its April annual report that deteriorating international conditions could cut into export revenue. Yantai Zhenghai Magnetics said last week that it had obtained export licenses and that production remained normal, but refrained from making detailed comments until its upcoming financial filings.

Industry analysts and insiders speculate that the increased pressure could spur consolidation among the hundreds of manufacturers that populate China’s rare earth sector, which may not be a bad outcome for Beijing.

“I do not know if Beijing sees that as a bad thing, because further consolidation is helpful for controlling and understanding where materials go,” said Abraham.

Two rare earth magnet manufacturers told Reuters anonymously that they expect significant revenue declines this year, although they didn’t offer exact forecasts.

“The impact on our export business will be huge, although it’s hard to tell exactly how much loss we will suffer,” said one of the producers.

In April, share prices of listed magnet producers fell sharply following the export restrictions, but they have recovered somewhat in recent months. According to Cory Combs, the head of critical mineral research at consultancy Trivium China, the rebound is not based on any tangible improvement in the business outlook.

“I can see various market outlooks, more or less negative depending on the assumptions, but none of them yield a sustainable rise in share price like we’re seeing,” Combs said.

And because many magnet makers are privately held, public share prices only reveal part of the story.

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