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- All roads lead to a dead end: the EU has calculated losses due to restrictions on the supply of rare earths from China
All roads lead to a dead end: the EU has calculated losses due to restrictions on the supply of rare earths from China
The alarm has been sounded in Europe: restrictions on the export of rare earth metals from China may be sensitive not only for the United States, but also for the EU, businesses are losing millions. The temporary restrictions imposed by Beijing amid the trade war with Washington have already led to the suspension of some automobile plants in Europe, and companies still cannot access rare earths. Meanwhile, for China, the threat of announcing a new pause in the supply of rare earth metals is becoming a lever of pressure in negotiations with the United States and the European Union. This opens up new opportunities for the Russian Federation, experts say. Details can be found in the Izvestia article.
Big problems
Restrictions on the supply of rare earths from China can cause serious problems to European producers, according to the materials of the European Central Bank (ECB). The companies' losses amount to millions, the European Chamber of Commerce confirms.
China produces more than 90% of the world's rare earth metals. China took on such an almost monopolistic position back in the 1990s, due to early investments in the sector and cheap labor.
Rare earths are needed in various industries, including nuclear technology, energy, microelectronics, and weapons production.
At the end of 2024, China tightened exports, now buyers must prove that supplies are necessary for peaceful purposes.
Dozens of European companies purchase rare earths from suppliers from China, including the chemical concern BASF and the aircraft manufacturer Airbus. A quarter of European automakers depend on the products of American companies that also use Chinese rare earths in their production. The United States imports only about 20% from Malaysia and Japan, which use Chinese—made intermediates, while the remaining 80% come from China.
Pressure levers
Europeans are afraid of becoming dependent on Chinese rare earths. Temporary restrictions on their exports, introduced in April, were a response to the increase in duties by US President Donald Trump. The Chinese authorities have added some rare earth metals to the control list, the products of which can be exported from the state only after obtaining a special license.
In May, shipments of metals from China sank to a five—year low in the second half of summer, when restrictions were lifted, exports recovered. At that time, it was believed that only American manufacturers were affected by them, but the ECB's estimates showed that they also hurt European companies. Most of them were forced to temporarily shut down production because they had not previously stocked up on metals in case of a supply failure.
The ECB fears that the situation may only worsen further. And given that it is almost impossible to diversify supplies, the dependence of the EU and the United States on them makes it possible to use this as a lever of pressure to conclude more profitable trade agreements.
They're doing the wrong thing
Ivan Petrov, Professor and Head of the Department of Logistics at the Financial University, notes that in recent years, China, which, according to international agencies, processes about 90% of the world's reserves and produces 94% of permanent magnets from them, has been constantly monitoring exporters of rare earth metals and permanent magnets in order to prevent the accumulation of surpluses of these goods outside its own jurisdiction. However, despite this, imports of rare earths to the EU increased by 37% in annual terms in 2022, the expert stressed.
According to the expert, the next stage of market regulation in China is the creation of a state information system for monitoring the export, import and use of rare earth metals and derivatives.
— Despite the truce in the trade war with the United States, export controls on rare earth metals continue for all countries, as they are declared state property in China. China, focusing on market development, has not stopped, but only limited exports through a system of preliminary requests for export licenses," the analyst explained in a conversation with Izvestia.
Petrov added that the June tonnage volume of exports of rare earth permanent magnets decreased by 38% by June 2024. In this regard, in the coming years, there may be a shortage in countries that consume rare earth metals, and especially those that are unfriendly to China, as well as a significant increase in prices for rare earth metals and products made from them, the expert believes.
"Instead of solving the problems of providing European companies with rare earth metals and permanent magnets, including those supplied from China, EU bureaucrats are focusing their efforts on implementing secondary sanctions against China due to oil and gas imports from Russia," the expert noted.
According to him, the officials of the united Europe themselves have created problems for their economy.
"However, they are not able to solve them, but only clumsily dash hopes for the development of high—tech European industry," the expert concluded.
China's strategic victory
Yulia Kuznetsova, an investment adviser, lecturer at Moscow State University, and founder of the online investment university Financology, noted in an interview with Izvestia that China's restrictions on exports of rare earth metals are a tool of geo-economic pressure. Beijing is deliberately strengthening control over the supply chains of strategic raw materials, realizing that rare earths are the basis of the entire "green" and digital agenda: from microchips and batteries to weapons and navigation systems, the expert explained.
— According to industry associations, China accounts for up to 70% of global production and over 85% of processing of rare earths. Europe has practically lost its own processing infrastructure in recent years, so dependence on Chinese exports remains critical, the analyst believes.
The expert believes that in the short term, European companies are already facing supply disruptions, rising prices for alloys and magnetic materials, and contract disruptions in the automotive and electronics industries. This primarily affects the German industry, the electric vehicle and turbine sectors, where rare earths are indispensable.
— In the medium term, the European Union is forced to accelerate its own import substitution programs — launching mines in Sweden and Portugal, subsidizing processing and concluding deals with Australia and Canada. But it's not a matter of months, it's a matter of years. The EU will remain vulnerable until 2028-2030, the expert predicts.
Kuznetsova added that this is a strategic victory for China, which turns resources into political capital and uses control over raw materials as an instrument of influence in the technological and industrial war.
"The consequences for Brussels are obvious: rising production costs, deindustrialization, lagging behind in green transformation, and increasing dependence on the United States, which is trying to create its own rare earth chains under the control of American corporations," the expert concluded.
A window of opportunity for the Russian Federation
Fyodor Sidorov, a private investor and founder of the School of Practical Investment, added that the European panic over Chinese rare earth metals is a clear example of what the long—standing policy of renouncing its own sovereignty leads to.
— Brussels has been building a green economy on foreign raw materials for years, and now it is surprised that Beijing is using its trump cards in the geopolitical game. According to the European Chamber of Commerce, some companies are already losing millions of euros due to license delays. Automakers are sounding the alarm about depletion of stocks. It's a classic story about how the pursuit of short—term gain turns into strategic vulnerability," the specialist emphasized.
According to the expert, the current crisis opens a unique window of opportunity for Russia.
— We occupy the second place in the world in terms of reserves of rare earth metals — 28.5 million tons, and we have exactly those elements that are critically important for high-tech production: neodymium, praseodymium, cerium. By 2030, we plan to increase production sevenfold to 7.5 thousand tons per year, fully meeting domestic needs and creating export potential," the specialist explained.
The analyst stressed that Europe is "rushing between Washington and Beijing, trying to find alternatives."
— They are allocating 400 billion euros for African projects, and they are building ambitious plans to extract 10% of raw materials by 2030, but the reality is that without Russian resources, their "green transition" will turn into an expensive gamble. It is no coincidence that Trump was talking about Russian rare earth metals — the Americans are well aware of their strategic importance," Sidorov believes.
In his opinion, while Brussels will spend years coordinating environmental standards for its hypothetical deposits, the Russian Federation is already developing the Tomtorskoye field in Yakutia, one of the richest in the world.
—And given our relations with China and the BRICS countries, the creation of an alternative supply chain for rare earth metals bypassing Western markets is a matter of the near future," the expert concluded.
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