China imposes export restrictions on rare earths and permanent magnet industries
On Friday, China announced new export restrictions on rare earths and permanent
magnets (link). While details are typically vague, it is important to note that that these
are export controls (and not an outright ban), and that they apply to all countries (and
not just the U.S.). While we are unsure about near-term NdPr price impacts, the news
firms up our view for the medium/long-term thematic for an ex-China industry...
What does this mean for the NdPr price?
It is complicated near-term. Positively, additional controls for China rare earths exports
could see a rush for ex-China supply and boost NdPr prices. Similarly, we note that
China's reciprocal 34% tariff on the U.S. (link) will likely apply to MP's (not covered by
UBS) exports of rare earth concentrate into China, and lift the proportion of China NdPr
producers that depend on its feedstock. However, uncertainty of export restrictions for
Chinese magnet makers may impact their immediate procurement needs (similar to
what happened in graphite in 2023) let alone the broader -ve demand outlook. We also
remind readers that we are still waiting on China 1H25 quotas, already likely delayed by
proposed changes that would include concentrate imports into their calculations (link).
Regardless, we are more constructive medium/long-term, and expect Western
stakeholders will see Friday's announcement as the strongest evidence yet that a
bifurcated rare earths market is a real possibility. We note spot NdPr is $54/kg, up 11%
YTD vs our CY25/26e forecasts of US$53/65/kg & LT price of US$75/kg.
China’s stranglehold on rare earths
China currently controls ~90% of global separated rare earths output, the result of a
decades-long policy focus on building out their refining capabilities to leverage their
geological advantage. While rare earths are levered into EVs / renewables / robotics
sectors, they are used in practically all aspects of modern life and for a wide array of
personal industrial uses. While rare earths can be substituted in some instances, they are
indispensable in others. Importantly, rare earths are vital for military applications which is
important to highlight as individual nations ramp-up military spending in the current
geopolitical backdrop.
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