The reason is an American-Chinese trade war, but the biggest blows are for Europe. China’s measures to clamp down on global trade in rare earths are a blow to European industry – and underline the need for the EU to become less dependent on .
Since China announced measures a week and a half ago that will soon further restrict the export of rare earth metals, in Brussels and, among other things, the defense sector. Extra painful: Europe wants to strengthen its autonomy on the world stage by investing in rearmament and the energy transition. But the advanced weapons, wind turbines and electric cars that go with them cannot be made without raw materials from China.
Earlier this month it was announced that the country is significantly increasing its export restrictions. Soon, seventeen instead of twelve rare earth metals – and the permanent magnets made from them – will require government permission before they can leave China.
These are elements with exotic names such as holmium, erbium and ytterbium. Solar panels, chips, electric toothbrushes, cars, Tomahawk missiles, batteries: all contain rare earth elements or require their magnets for production.
This spring, China started a first round of restrictions. With the new round of restrictions – some of which will come into effect from November and some from December – China is further exploiting its monopoly. An export license will also be required from November for Chinese technology and knowledge needed to refine these metals and turn them into magnets.
Minimum price
A number of affected companies held crisis consultations on Monday with Stéphane Séjourné, European Commissioner for Industry. Afterwards, he said that the EU will continue to work on a diplomatic solution. There is hope that the summit meeting between Chinese President Xi Jinping and his American counterpart Donald Trump in South Korea will lead to the withdrawal of restrictions from Beijing, which were a response to American trade restrictions. If China is not prepared to do so, the Europeans will want to negotiate their own exceptions in separate negotiations.
That’s one half of the solution. The other half is accelerated reduction of dependence on China. Even if the current crisis ends with a fizzle, Brussels policymakers are even more convinced that the EU should not hand over 98 percent of its rare earths to China, as is currently the case. How can the continent change that as quickly as possible? “This speeds up that discussion,” said an EU diplomat.
Working together seems to be the motto. And not with China. The European Commission is primarily looking at the G7, the group of economic superpowers, which will meet again in Canada at the end of this month. They may choose the rare earths market, which has been flooded with Chinese rare earths so far. One of the proposals on the table for this purpose, Reuters reported, is the establishment of a minimum price. In this way, production and processing of our own raw materials could become viable in these countries, without dirt-cheap competition from China.
Séjourné previously indicated that he wants to focus on building strategic stocks of rare earth metals and other raw materials, following the export restrictions that China announced in April this year. “All European countries have oil and gas reserves,” said the European Commissioner. “We must also do the same with critical raw materials.”
Dominant in every step
China’s announcements go “much further” than this spring’s export restrictions, says Andor Lips, raw materials expert at TNO’s Dutch Materials Observatory. That center was established earlier this year on behalf of the Ministry of Economic Affairs to monitor access to critical raw materials. Lips thinks that China’s newly announced measures “could have an enormous impact on many sectors.”
In this way, China is actually blocking all ways to circumvent the previous export restrictions, Lips sees. “The highly magnetic holmium, for example, was not previously on the list. It was used to replace dysprosium as a heavy rare earth in permanent magnets that are stable at higher temperatures.” This circumvention will soon no longer be possible.
Not only access to the materials themselves, but also all the important steps afterwards, makes China more inaccessible. Chinese technology and instruments for refining these materials will soon also be subject to the new rules. “Consider separating the rare earth metals,” says Lips. “These are seventeen elements that are only useful if they are separated in a very pure form. But that separation is difficult because they are chemically similar. China is dominant in those separation technologies.”
China is dominant in every processing step. Lips: “Your cookbook, your recipe, your pots and pans and some of your ingredients – everything is suddenly taken away from you.”
Export restrictions do not mean the same as an export ban. If China were to really stop exporting rare earth metals, entire sectors would be at risk of coming to a standstill. It’s not that far yet. However, the Chinese government will soon have to give approval. That involves a lot of paperwork, and getting permission takes a long time. As a result, stocks are shrinking and prices are rising.
“After the April announcement you saw confusion on both sides,” says Lips. “Western customers and Chinese exporters had to figure out how to comply with the measures. In addition to higher prices, production stoppages could also occur this time – because it is so acute.”
Monopoly hits defense
Car manufacturers have already warned in German media of “far-reaching consequences”. In Germany, the automotive industry is by far the largest consumer of rare earth metals. Electric and petrol cars contain permanent magnets: from the windshield wipers to the door locks, the seat adjustment to the drive and braking systems.
Volkswagen leaves in the Frankfurter Allgemeine Zeitung fear a similar pattern as after the export restrictions in April. It took weeks for export requests to be processed and production had to be temporarily halted in some factories.
The measures could be even more problematic for the defense industry. Permanent magnets are desperately needed for tanks, missiles, radar systems or drones. In this way, Ukraine’s defense against Russian aggression also depends on rare earth metals. When it comes to metals intended for military equipment, China does not impose a licensing requirement but an outright ban.
“New export restrictions would hit Europe’s defense industry hard and potentially slow production of ammunition and high-tech systems,” Belgian defense specialist Daniel Fiott previously told Euronews. “They also come at the worst possible time, just as Europe is trying to expand with major investments.”
The Ministry of Defense remains mum about possible consequences and writes that it is “constantly in consultation with each other about the supply of equipment.” […] If availability of raw materials is problematic, that will also be discussed.”
China has been active in the extraction and processing of rare earth metals since the late 1980s. Western countries were initially okay with China hosting mining and refining companies. They were polluting and yielded little profit.
How detrimental this Chinese monopoly could be became apparent for the first time in 2010, when Beijing used export restrictions as a means of pressure in a conflict with Japan. That set in motion a major change of course in Japan, which European and American politicians are now watching with interest and envy. In fifteen years, that country reduced its dependence on Chinese rare earth metals from 90 to 60 percent of the total.
Although the United States is still heavily dependent on China for rare earths, the US is rapidly trying to become more self-sufficient. This summer, the Pentagon became the largest shareholder in the mining company MP Materials, that mines and processes rare earth metals. Shortly afterwards, the company signed a half-billion-dollar deal with American tech giant Apple. On Tuesday it was also announced that the US has signed a billion-dollar deal with Australia to extract and process critical raw materials in the country.
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Rare earth metals are definitely part of the battle
Europe cannot keep up with the pace of China and the US. Last year the European Union came up with the Critical Raw Materials Act, to speed up permitting procedures and enable subsidies for mining projects within the EU and in neighboring and partner countries.
Ultimately, there are insufficient places in the European subsurface where this rare earth occurs in recoverable quantities. Hope is placed on finds in Norway and Greenland, but it is uncertain how much they can actually contribute. That is why recycling is also one of the pillars of the Critical Materials Act. Recycling technologies to recover the earth metals from scrap exist, but are only developed to a limited extent on a commercial scale.
“Recycling does offer potential,” says Lips, “but that also takes time. We are not yet equipped for it. Moreover, as long as the demand for rare earth metals continues to grow, the supply of recycling will always lag behind.”
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