Rare Earths: Which Stocks Could Benefit from China’s Export Curbs?

As the trade war between Washington and Beijing intensifies, China has upped the ante with a new weapon: rare earth elements (REEs). 

In response to US President Donald Trump’s tariffs on Chinese products imported to the US, the Chinese government has decided to slap new export restrictions on seven REEs: dysprosium, gadolinium, lutetium, samarium, scandium, terbium and yttrium. Companies now require special licenses to export them, as first reported by the New York Times last week.

These seven are part of a group of 17 REEs, as defined by the US Geological Survey (USGS), that are used to make rare earth magnets, including Neodymium (NdFeB) magnets. These are more powerful than standard magnets and have use cases across multiple industries, from automotive to electronics and renewable energy. 

NdFeB magnets have become the go-to choice for wind turbine operators because they enable more reliable power generation. They are also considered to be the most effective way to power electric vehicles (EVs). And, if you have ever wondered how smartphones generate haptic feedback, the answer is NdFeB magnets. 

The problem is that China holds a near-monopoly over the global supply of these magnets. 

According to Goldman Sachs, China is responsible for 85–90% of global REE mine-to-metal refining. USGS data shows the country had 44 million tons of rare earths — resources are typically reported as rare earth oxides — in reserve last year. For comparison, the US had just 1.9 million tons and is reliant on China for imports. 

A Threat to US Defense Stocks

It is not clear how exactly Beijing plans to implement the restrictions, but it is believed that it will take until the end of May for export licenses to be issued. In the meantime, there is likely to be a pause on exports, and shipments will remain at Chinese ports, as was noted in a report by the Center for Strategic and International Studies (CSIS). 

This could threaten the US defense industry. REEs are used in Lockheed Martin’s [LMT] F-35 fighter jets; Arleigh Burke-class DDG-51 destroyers, built primarily by Northrop Grumman [NOC]; and Virginia-class submarines, manufactured by BAE Systems [BAESY].

The CSIS warned that the US “is already on the back foot when it comes to manufacturing these defense technologies”. Now, restrictions on REEs “will only widen the gap, enabling China to strengthen its military capabilities more quickly than the US.”

US Seeks to Boost Domestic Production

The US is at least aware of its shortcomings. 

In March 2024, the US Department of Defense (DOD) set a goal of developing a mine-to-magnet REE supply chain to meet all defense needs by 2027. Between 2020 and that month, the DOD had handed out $439m to build its domestic REE supply chain. 

One of the companies involved is MP Materials [MP]. The Las Vegas-based rare earths company was awarded a $58.5m tax credit in April to support the construction of the US’ first fully integrated rare earth magnet manufacturing facility in Mountain Pass, California.

The facility is expected to start ramping production toward the end of 2025, and, once fully operational, is expected to produce 1,000 tons of NdFeB magnets annually. However, this is a fraction of the 300,000 tons of NdFeB magnets that China alone produced in 2024, according to the CSIS. 

The DOD has also previously backed the US subsidiary of Australian company Lynas Rare Earths [LYSCF]. The biggest rare earths producer outside of China received a $30.4m grant in 2021 for a facility handling light REEs, and a further $120m the following year for a facility to process heavy REEs.

Even if production of NdFeB magnets could be scaled up, the US is still going to have to rely on imports. And, if companies need to source the REEs from other parts of the world, they are likely going to have to pay a premium for the privilege of importing them, Daniel Pickard, Chairman of the critical minerals advisory committee for the Office of the US Trade Representative, told Yahoo Finance last week. 

Pickard named Ford [F], GM [GM], Rivian [RIVN] and Tesla [TSLA] as automakers that could be impacted, despite the EV industry trying to reduce its exposure to REEs. 

US Pain Could be Miners’ Gain

The share prices of several Australian miners surged following the New York Times report last week. The ASX-listed shares of Lynas hit their highest level in more than two years.

“Lynas is ideally positioned to take advantage of favorable rare earths market conditions and meet the needs of magnet buyers,” a spokesperson told the Australian Daily Telegraph. 

Lynas mines light REEs in western Australia and these rare earths are then shipped to Malaysia where they are refined. The miner reported a 22% increase in production of light rare earths (NdPr) to 2,696 tones for the first half of its fiscal 2025, which ended December 31. 

Lynas does not refine heavy REEs, but is set to start producing dysprosium and terbium — two of the REEs on China’s restriction list — at its Malaysian facility from the middle of 2025. 

According to Guy Bourassa, CEO of Montreal-based Scandium Canada [SCDCF] — which claims to be developing one of the world’s largest primary sources of scandium — China’s REE restrictions are “bad news” for any end user, given that the country controls approximately 75% of scandium production. 

However, Hughes told InvestorNews, he is looking at the situation “very positively”. It could create an opportunity for “good countries like Australia and Canada” as end users scramble to secure a reliable scandium supply. 

Conclusion 

REEs are strategically important to the global energy transition, but China’s dominance of the REE supply chain could impact the defense industry, putting the US on the back foot. 

Despite the fact that Washington is taking steps to boost domestic production, meeting demand will not be easy, so REE buyers may have to rely on the likes of Australia and Canada for their supply.