Analysis-China's rare earth export controls are good for Beijing, bad for business
Much like U.S. chipmaker Nvidia, China's rare earth magnet makers are victims of their own importance.
Caught in the geopolitical crossfire of Washington's tariffs and China's retaliation, share prices of the listed magnet makers slumped in April after the export curbs were announced. However, they have climbed off their lows over the past three months.
The rebound does not appear to be based on any reasonable forecast of the industry's future, said Cory Combs, head of critical mineral research at consultancy Trivium China.
"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," he said.
Many magnet makers are also private, so share prices only tell a limited story, he said.
Many producers already faced weaker conditions at home, including a price war among electric vehicle makers, a key customer segment, that has seen manufacturers demand discounts from suppliers.
In addition, the highly customised nature of many magnet products makes it hard to resell cargoes domestically, forcing magnet makers to store them during the wait for licenses, four sources said, also speaking anonymously.
CHALLENGES MAY SPUR CONSOLIDATION
Listed magnet maker Baotou Tianhe Magnetics Technology Co noted the export curbs in its annual report released in late April, and said its export revenue could decline if the international situation deteriorated.
Yantai Zhenghai Magnetics said last week it had received export licenses and production was normal. It referred investors to its upcoming financial filings for specific operating results.
However, a quick return to the previous status quo is unlikely if the rare earth controls are implemented in a manner similar to those on other critical minerals including germanium and antimony, according to Argus' Saklatvala.
China imposed export controls on germanium and antimony over the course of 2023 and 2024. Despite being used mostly by civilian industries, which in theory should face few issues getting licenses, exports have still not recovered fully, customs data shows.
Europe is receiving only a tiny fraction of the antimony it imported from China before export controls were imposed last September. The shortages are already causing major problems for lead-acid battery makers, commonly found in gasoline engines.
"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," Saklatvala added.
The large amounts of information required by export license authorities are a permanent change for the industry that will add delays and costs for producers, said David Abraham, affiliate professor at Boise State University, in Idaho.
"In some sense, there's no going back," he said.
In an industry that has hundreds of manufacturers, the pressures could lead to consolidation, he said.
"I do not know if Beijing sees that as a bad thing, because further consolidation is helpful for controlling and understanding where materials go."
(Reported by Reuters staff; Editing by Lewis Jackson and Sonali Paul)
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