Following a meeting between U.S. President Donald Trump and Chinese President Xi Jinping in South Korea in late October, China’s Ministry of Commerce confirmed that it will suspend plans to implement export controls on five critical rare earth elements (REEs), which had only been announced on October 9 amid simmering trade tensions between both countries.
Export restrictions on holmium, erbium, thulium, europium, and ytterbium, which had been set to go into effect from November 8, have reportedly been suspended for one year as part of a tentative trade truce. However, export controls imposed on several other rare earth elements that were announced in April remain in place despite the recent agreement.
After President Trump’s announcement to increase tariffs on many imports from China to 54%, the Chinese government had unveiled new export controls on samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium as well as magnets and other finished products made using these elements in early April. While the move was seen as a response to escalating trade tensions with the U.S., the restrictions apply to exports to all countries, not just to shipments destined for U.S.-based companies. The controls do not constitute an outright export ban but introduced a licensing system that requires companies to obtain government approval before shipping rare earths and products made with them to customers outside of China.
Chinese export restrictions threaten global supply of several rare earth elements
In total, China currently accounts for around 60-70% of rare earth production and roughly 90% of processing operations, turning any export restrictions into a potential threat to global supply chains. Following the announcement of the new licensing system in April, industry representatives warned that companies in a wide range of sectors, including automotive, electronics, and defense could face operational issues due to limited inventories and delayed shipments of new materials. Some worried that the new export system would also trigger a price surge for many of the affected rare earth elements, increasing the overall manufacturing costs for components made with them as well.
Most recently, the global supply of yttrium, a heavy rare earth element mainly used to make high-performance alloys and protective coatings, has tightened amid months-long shipment delays in China, causing global prices for the material to spike. In Europe, prices for yttrium oxide skyrocketed to $270 (€230) per kilogram by mid-November, an increase of around 4,400% since the beginning of the year. Prices in China also increased during the same period, albeit by just 16% to around $7 (€6) per kilogram.
Chinese authorities have reportedly granted some export licenses since the new restrictions went into effect; however, most of the licenses were said to be for relatively small amounts of yttrium shipments. While this supply crunch has yet to cause production stoppages, concerns over impending operational disruptions remain high in sectors heavily dependent on a steady supply of yttrium such as the energy, aerospace and defense, and electronics industries.
In the energy sector, yttrium coatings are often used to protect turbine blades from high temperatures, leaving manufacturers exposed to business disruptions in case of prolonged import delays. GE Vernova, Inc., one of the world’s three biggest gas turbine makers, expects its yttrium reserves to last into 2026, but has not provided further details about the size of its inventory. The company has also started to work with the U.S. Government to refill yttrium stockpiles and is reportedly exploring the possibility of replacing some rare earth elements in its manufacturing processes. It wasn’t immediately disclosed which rare earth elements GE Vernova, Inc., is hoping to replace, but a company representative cautioned that alternative materials might come with higher costs or performance trade-offs. Japan-based Mitsubishi Heavy Industries, Ltd., and Germany-based Siemens Energy AG denied any immediate impacts on their operations amid tightening yttrium supply, but the latter confirmed plans to diversify its rare earth elements supply away from China in general to avoid shortages in the future.
While full production stoppages are reportedly not expected any time soon, some industry representatives in the semiconductor sector have warned that the dwindling yttrium supply could eventually result in manufacturing bottlenecks that would put production schedules at risk of delays. Even if full shutdowns are averted, rising material costs and longer lead times are expected to impact production in the sector in the coming months, with larger semiconductor manufacturers likely to be more exposed, according to an executive of Michigan-based Great Lakes Semiconductor LLC, a developer of a modular open hardware launchpad.
In the aerospace and defense industries, where yttrium is used to make components such as advanced jet engines, concerns over long-term supply security also remain elevated. The Aerospace Industries Association, a trade union representing manufacturers and suppliers in the aerospace and defense industries in the U.S., cautioned that the country’s heavy reliance on rare earth shipments from China leaves the sector particularly vulnerable to business disruptions. According to a report published by the U.S. Geological Survey in January, the U.S. imported 93% of its yttrium supply directly from China, while the remaining 7% were made with materials previously processed in China, highlighting the country’s significant dependence on Chinese yttrium shipments. The union is reportedly working with the U.S. Government as well to expand domestic yttrium supply, but no details about the collaboration were disclosed yet. With Chinese officials seemingly particularly focused on preventing the use of Chinese raw materials and components in military applications abroad, companies in the sector, which often make products that can be used for civilian as well as military purposes, are likely to remain at an especially high risk of business disruptions in the months to come.