Increase in Rare Earths Prices Alarms Industry Sector
In a significant turn of events, China's export controls on critical rare earth elements (REEs) have caused a ripple effect across the global market, particularly impacting the US and German supply situations.
On April 4, 2025, China imposed export controls on seven key REEs, including Samarium, Gadolinium, Terbium, Dysprosium, Lutetium, Scandium, and Yttrium. These elements are essential for the production of magnets, batteries, and electronic displays. The new measures require exporters to obtain licenses and comply with strict monthly quotas, with added scrutiny to prevent sales to military-related end users [1].
China, producing over 90% of global rare earth magnets, further intensified these controls as a response to US tariffs on Chinese goods, making exports to the US or via countries like India particularly deprioritized [2]. As a result, shipments of rare earth magnets to the US have dropped by about 75%, causing serious supply shortfalls for US automakers and defense suppliers [2].
The shortage has forced temporary shutdowns of factories dependent on these magnets, as confirmed by Ford’s CEO. Additionally, customs inspections and third-party product testing have added months of delays, further constraining supply chains [2].
In reaction, the Trump administration responded with trade and diplomatic measures targeting China, including visa revocations and export bans on semiconductor software. Subsequently, a deal was reached allowing some Chinese rare earth supply to the US under a new tariff framework, aiming to restore partial access while maintaining US leverage through tariffs [3].
European suppliers have noted some easing, with better export license approval rates. However, the prioritization still favors Europe over the US, meaning supplies to Germany and other European countries face less severe but ongoing restrictions and elevated costs [2].
The persistent supply risks have prompted European industries, particularly automotive, to seek alternative sources and invest in recycling and rare earth substitution technologies. The reduction in Chinese exports and increased export controls have caused a sharp spike in rare earth prices globally, reflecting supply scarcity and logistics uncertainties [1][2].
The delays and additional testing requirements increase transaction costs and push prices higher, impacting the cost base for end users in the US and Germany. The tightened supply situation in the US and Germany may continue to drive up prices for REEs.
The trade conflict between China and the USA, triggered by China's export controls on REEs, shows no signs of abating. The new EU stockpiling strategy has been proposed to ensure the availability of REEs, as the current strategy, according to the machinery industry, is not sufficient to ensure the availability of these crucial raw materials for numerous high-tech industries.
References: [1] DZ Bank Analysis, May 2025 [2] Financial Times, May 2025 [3] Wall Street Journal, June 2025
In the global financial arena, the persistent supply risks of rare earth elements (REEs) due to China's export controls have escalated transaction costs for end users in the US and Germany.
As the trade conflict persists between China and the USA, the European Union proposes a new stockpiling strategy to secure the availability of REEs, which are crucial for the technology-driven sectors like automotive and high-tech industries.
