China dominates the global rare-earth supply chain, controlling nearly 70% of production and almost half of global reserves. The European Chamber of Commerce in China reported that at least one member lost “millions of euros” due to China’s restrictive rare-earth export policies.
Challenges Faced by European Firms
European firms face challenges as the licensing process for rare-earth exports remains inconsistent. While some approvals improved earlier this year, there is increasing difficulty in obtaining export licenses. Beijing’s measures require proof that shipments won’t be used for military purposes and involve single-use licenses, adding to the uncertainty Europe faces.
The EU depends on China for almost half of its rare-earth imports, leaving businesses vulnerable. With ongoing foreign business confidence issues, companies warn of potential shortages by Q3. The ECCC plans to brief EU policymakers as China readies its next five-year plan.
We see China’s tightening control over rare-earth exports as a direct threat to European industrial output, creating a clear opportunity to anticipate market turbulence. This points toward buying volatility through instruments like options on the VSTOXX index, which tracks Euro Stoxx 50 volatility. Given that the VSTOXX has already climbed from 14 to over 18 in the last month, we expect this upward trend to continue as shortages become more acute.
Derivative trades should target specific sectors that are heavily dependent on these materials, such as automotive and renewable energy. We should consider buying put options on major German automakers and wind turbine manufacturers, who will face rising costs and potential production halts. Recent data from the German ZEW Economic Sentiment survey, which fell to a six-month low in early September 2025, supports our view that industrial confidence is already fragile.
Opportunities for Non Chinese Rare Earth Producers
Conversely, this geopolitical tension creates upside for rare-earth producers outside of China, particularly in Australia and the United States. We saw these companies’ stock prices surge over 30% during similar export curb fears back in 2023, and that history is likely to repeat itself. Call options on these specific mining and processing firms offer a direct way to gain exposure to this supply chain realignment.
The broader macroeconomic impact suggests a weakening Euro, as the EU’s manufacturing base faces a significant headwind. Shorting EUR/USD futures is a logical position, especially since the Eurozone’s latest manufacturing PMI reading for August 2025 already dipped below the 50-point contraction threshold. This supply shock will likely worsen Europe’s economic outlook relative to the United States.
