China’s sweeping restrictions on exports of vital minerals and magnets have sent shares of rare earth companies soaring and injected new urgency into a billion-dollar stockpiling drive by the Pentagon.
Whether intended as a negotiating tool or to create genuine change, Beijing’s grip on an economic choke point poses a serious threat to Western manufacturing and defence supply chains.
The measures announced on October 9 mark a dramatic escalation of China’s efforts to exert dominance in rare earths. They effectively bring all the main rare metals, oxides and magnet materials under export control — with an explicit export ban for anything that could be used by foreign armed forces.
“Given China’s dominance in the sector — accounting for roughly 70% of rare earth mining, 90% of separation and processing, and 93% of magnet manufacturing — these developments will have major national security implications,” said Gracelin Baskaran (pictured), director of the critical minerals security programme at the Centre for Strategic & International Studies in Washington, in a research note on China’s move.
In the defence sector, rare earth elements are vital to the manufacture of everything from fighter jets and submarines to radar and communication systems. Although it is uncertain how severely China will impose its new controls, they are a massive risk for the US.
Filings from the Pentagon’s Defense Logistics Agency recently made public show the US military plans to stockpile almost $1bn worth of metals. This includes $500m of antimony from US Antimony Corp, whose share price rose 37% on Monday following the news.
“If you look at some of the share prices of rare earth companies in the United States they have gone to the moon,” Chris Berry, president of battery metals-focused research firm House Mountain Partners, told Global Markets.
Adding jet fuel to the rare earth rally was JP Morgan’s announcement on Monday of a new $1.5tn Security and Resiliency Initiative, in which it will provide financing and investment for industries crucial to US economic security.
Jamie Dimon, the bank’s CEO, said it had become “painfully clear that the United States has allowed itself to become too reliant on unreliable sources of critical minerals, products and manufacturing — all of which are essential for our national security.”
Critical Metals Corp stock shot up 55% on Monday and USA Rare Earth 19%. MP Materials shares climbed 21%, and are now up 480% since the start of the year.
The impact on the rest of the US economy, however, is likely to be severe.
China has signalled that it remains open to negotiation. But even if non-military uses are not explicitly banned, the Chinese export regime has already proved it can disrupt Western manufacturing.
In June, Ford CEO Jim Farley said a rare earth mineral shortage — following a new Chinese licensing system — had forced it to halt production at one of its plants. In September, the EU Chamber of Commerce in China said a shortage of rare earth products had forced multiple European firms to pause operations.
These latest export controls have shocked analysts by their breadth. They encompass huge swathes of the lithium ion battery supply chain and extend to specific technologies used in things like rare earth processing. “Now it’s not only the raw materials being restricted — it’s the actual IP around producing them,” Berry said.
Security analysts have suggested that these new tech restrictions are directly aimed at third countries like Pakistan, which began exporting processed rare earths to the US at the start of this month. China’s foreign ministry denied this on Monday.
Given the escalatory spiral, the Pentagon’s stockpiling strategy makes sense in the short term, security analysts said. But the sheer extent of US vulnerability to China’s rare earth dominance has redoubled calls for an Operation Warp Speed devoted to critical mineral supply chains. That would cost far more than $1bn.
“We need to spend [many] times that on the raw materials and the processing in order to really compete with China,” Berry said. “I can build a lithium refinery here in the US for $1bn, but we need 10.”
Photo courtesy of CSIS