China warns Western companies against hoarding rare earth metals

China warns Western companies against hoarding rare earth metals or risking even greater shortages, as Beijing tightly controls the supply of metals vital for electric vehicles and other civilian and defense sectors, writes UNN with reference to the Financial Times.

DetailsChina has banned foreign companies from hoarding rare earth elements and their products, which are mostly magnets used in electric motors and other critical technologies, as fears of Beijing’s export restrictions drive up demand, according to two people familiar with the matter.

“Beijing is telling companies they cannot build huge stockpiles of rare earth metals, or they will face shortages,” one source said.

Another person familiar with the matter said that Chinese authorities are deliberately limiting approved export volumes to prevent stockpiling abroad. “From now on, this will be a leverage,” they said.

China dominates rare earth production, processing about 90% of the world’s supply and producing 94% of permanent magnets. It has used this control over a vital industry as a weapon in the trade war with the US.

According to sources, Beijing’s efforts to prevent companies from accumulating large stockpiles, which would give them more flexibility to respond to shortages and price fluctuations, demonstrate its determination to maintain maximum influence in the sector.

In April, China added seven categories of medium and heavy rare earth elements to its export control list in response to US President Donald Trump’s “Liberation Day” tariffs. This move, which also covered permanent magnets and other finished products, caused shortages in a number of industries, including automotive, the publication writes.

Although Washington and Beijing agreed this week to another 90-day extension of their tariff truce, China’s control over rare earth elements remains an important part of the negotiations.

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“It’s still definitely an issue,” said one person familiar with the negotiations.

Beijing controls the extraction of rare earth elements through mining and processing quotas. Last year, quotas were allocated to only two state-owned companies.

China has allowed a partial resumption of the flow of rare earth elements after US and European officials and companies complained that the controls had led to shortages. But trade data and surveys show that Beijing still tightly controls exports.

According to a survey by the US-China Business Council (USCBC) last month, half of the member companies surveyed said that most of their rare earth applications were pending or had been rejected.

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China exported 3,188 tons of rare earth permanent magnets in June, more than double the volume exported in May, but 38% less than a year earlier. In the three months to June – since Beijing imposed trade restrictions – magnet exports were approximately half the volume of the same period last year.

The USCBC report states that large orders, especially a surge “above the applicant’s historical averages, attract closer scrutiny to prevent perceived stockpiling.”

“Applications are also reviewed step-by-step,” the report adds. “Any discrepancies can lead to delays or rejection of the application.”

People involved in the application review process noted that due to longer waiting times, industry associations and business lobbies often approached China’s Ministry of Commerce with questions about the most urgent needs, which then typically expedited the review of applications from companies at the top of the list.

This issue has led some Western companies to move finished product manufacturing to China – a result that suits Beijing as it seeks to strengthen control over the supply chain.

Luis Pinkham, CEO of US motor manufacturer Regal Rexnord Corp, said the company had moved some production to China to assemble rare earth magnets into products in the country and facilitate their export.

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