China Warns Western Companies Against Hoarding Rare Earth Metals, Some Western Firms Shift Finished Product Manufacturin

China has prohibited foreign companies from hoarding rare earth elements used in electric motors. The Chinese government controls exports to prevent overseas stockpiling, thereby maintaining its influence in the industry.

UNN, citing the Financial Times, reported that China has warned Western companies against hoarding rare earth metals, or they may face the risk of more severe shortages. The Chinese government is currently strictly controlling the supply of rare earths, which are crucial for electric vehicles and other civilian and defense applications.

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According to two informed sources, China has banned foreign companies from stockpiling rare earth elements and their products, primarily magnets used in electric motors and other critical technologies, as concerns over Beijing’s export restrictions have driven up demand.

One source stated, "The Chinese government has told companies that they cannot hoard large quantities of rare earth metals, or they will face shortages."

Another informed source mentioned that Chinese authorities intend to limit the approved export volumes to prevent overseas stockpiling. "From now on, this will serve as leverage," they said.

China dominates rare earth production, processing approximately 90% of the global supply and producing 94% of the world’s permanent magnets. During the trade war with the United States, China leveraged its control over this critical industry as a weapon.

According to sources, Beijing’s efforts to prevent companies from hoarding large inventories will provide greater flexibility in addressing shortages and price fluctuations, indicating China’s determination to maintain maximum influence in the industry.

In April, China added seven categories of medium and heavy rare earth elements to its export control list in response to former U.S. President Donald Trump’s "Liberation Day" tariffs. The report noted that this move, which also included permanent magnets and other finished products, led to shortages in many industries, including automotive.

Although Washington and Beijing agreed this week to extend the tariff truce for another 90 days, China’s control over rare earth elements remains a significant part of the negotiations.

Trump Delays High Tariffs on Chinese Goods by 90 Days
"This is definitely still an issue," said a person familiar with the negotiations.

The Chinese government controls the mining of rare earth elements through mining and processing quotas. Last year, quotas were allocated only to two state-owned enterprises.

After complaints from U.S. and European officials and businesses about rare earth controls causing shortages, China has allowed a partial resumption of rare earth element flows. However, trade data and investigations show that exports are still tightly controlled.

A survey conducted last month by the U.S.-China Business Council (USCBC) revealed that half of the member companies surveyed reported that the majority of their rare earth applications were pending approval or had been rejected.

China’s Rare Earth Exports Increased by 60% in June
China exported 3,188 tons of rare earth permanent magnets in June, more than double the volume exported in May but 38% less than the same period last year. Since Beijing implemented trade restrictions, magnet exports over the three months ending in June were about half of what they were during the same period last year.

The USCBC report noted that large orders, particularly "sudden surges exceeding the historical average of applicants, attract stricter scrutiny to prevent stockpiling."

The report added, "Applications are also reviewed incrementally. Any discrepancies may lead to delays or rejections."

Individuals involved in the application review process pointed out that due to long waiting times, industry associations and business lobbying groups often raise the most urgent needs with China’s Ministry of Commerce, which typically expedites applications from companies at the top of the list.

This issue has led some Western companies to shift the manufacturing of finished products to China—an outcome that aligns with Beijing’s goal of strengthening control over the supply chain.

Louis Pinkham, CEO of U.S. automaker Regal Rexnord Corp, stated that the company has moved some of its production to China to assemble rare earth magnet products there and facilitate their export.