Escalation in the trade war: China introduces export controls for rare earths
Over the weekend, China did something we have been warning about for a long time. Starting October 1st, all traders must disclose the entire production chain of rare earths such as terbium and dysprosium, including which countries they are exporting to. In doing so, the People’s Republic is putting enormous pressure on Western industry, which is dependent on these critical metals.
A clear signal for investors
Shares of mining giant Lynas jumped 6% today (see charts on the right). We see this as a clear signal for investors to go long on these commodities. This means purchasing them, as their prices are highly likely to rise sharply. China has used export controls for rare earths as leverage in the past, such as against Japan in 2010. The price of these commodities skyrocketed as a result. But one does not have to look so far back: in August 2023, China imposed export controls on gallium and germanium, with significant consequences for the prices of these metals. Even the price of indium jumped, although the metal has not yet been affected by export controls at all.
Systematic control starting October 1st
A window of opportunity is closing here. As the Chinese government explains on its website, it intends to standardize, improve, and simultaneously nationalize the mining of rare earths. However, the decision to systematically control exports starting October 1st could also be retaliation for the American decision to drastically increase tariffs on Chinese e-cars (as we reported). With a nationwide system installed to control rare earth exports, China could respond to any kind of Western sanctions simply, directly, and effectively. This is because Europe still imports over 90% of its rare earths from China.
Whoever possesses rare earths is wealthy!
“The Middle East has oil, China has rare earths,” said former Chinese party leader Deng Xiaoping back in 1992. We have been saying since around 2018 that China will also use its power over commodities and introduce controls. Rely on our “crystal ball”! Especially now, because China is getting serious and could soon demand the true prices for these scarce commodities. These could easily multiply over the next few years, especially since China is now also planning environmentally friendly mining. Above all, however, rare earths are indispensable for car manufacturing, the energy transition, and defense. Whoever has them is wealthy!
Video "Dros asks Kroll" special edition
Alexander Dros and our commodities and finance expert Andreas Kroll held a discussion regarding the export controls for rare earths announced by China. In it, they explain the impact the new measures will have on the security of supply for European industry and on investments in commodities.