China’s rare-earth export curbs strain magnet makers despite geopolitical leverage

China’s export restrictions on rare earths have bolstered its geopolitical hand but triggered steep losses and production cuts for its magnet manufacturers, already hit by weak domestic demand and shrinking overseas sales.

The export curbs, imposed in April in response to U.S. tariffs, slashed magnet exports by 75% in two months and forced several global automakers to pause production. While China dominates rare-earth magnet production, exports accounted for up to half of revenue for some major producers in 2024.

Baotou Rare Earth Products Exchange, a state-backed trading platform, said the restrictions had created a “crisis” for some manufacturers and warned that any recovery, even after a U.S.-China deal in late June to resume rare-earth flows, would take time to implement. Inventory has continued to build in warehouses.

“Their sales are now being squeezed from both ends – disrupted exports and flagging domestic demand,” said Ellie Saklatvala, head of metal pricing at Argus. “They have temporarily lost an important part of their customer base, with no certainty about when they will regain it.”

Two rare-earth magnet producers told Reuters that revenue is expected to fall this year, though they declined to be named due to the sensitivity of the issue. Small and medium-sized producers cut output by around 15% in April and May, a source familiar with the situation said.

The highly customised nature of many magnet products makes it difficult to reroute them into the domestic market, forcing producers to store unsold cargo while awaiting export licences.

Though listed firms such as Baotou Tianhe Magnetics Technology Co and Yantai Zhenghai Magnetics have acknowledged the risks, most of China’s magnet industry remains private, limiting visibility into the full impact. Analysts say recent share price rebounds may not reflect underlying challenges.

The controls echo previous Chinese export restrictions on other critical minerals such as germanium and antimony. Despite mainly civilian uses, exports of those materials have yet to fully recover, and similar delays are expected in the rare-earth sector.

David Abraham, a professor at Boise State University, said the increased paperwork and oversight introduced by China’s export licensing regime would have long-term effects. “In some sense, there's no going back,” he said, noting that the resulting pressure may drive consolidation in an already fragmented industry.

Analysts say further consolidation could suit Beijing’s broader strategy of reinforcing control over the supply chain while leveraging rare earths in geopolitical negotiations.

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