Shipments of seven rare earth elements from China have been halted due to new export controls implemented by the government on April 4. These materials are essential for the defence, energy, and automotive sectors, and exporters now require licenses, which can take weeks or months to obtain.
China produces around 90% of the world’s rare earth elements, and extended delays may exhaust overseas stockpiles and disrupt supply chains. Some sellers have declared force majeure on contracts, while customs delays have caused cargoes to remain stuck at ports.
Alternative Sourcing
These developments may motivate foreign buyers to seek alternatives to Chinese supplies.
Beijing’s decision to tighten export controls has clearly introduced a new delay in the movement of key materials. The restricted shipments—covering a suite of seven rare earth elements—aren’t just bureaucratically delayed; they are, in many cases, stuck entirely. Some contracts have already been cancelled under force majeure clauses. This is not merely a question of paperwork or red tape. Exporters now face a rigorous licensing process that can stretch across multiple months, immobilising supply and rendering previous delivery schedules obsolete.
With China responsible for roughly nine out of every ten tonnes produced worldwide, these shipment freezes place traders and end users in a challenging position. Most external stockpiles were not built with this longevity in mind. Warehouses holding existing reserves in Europe and North America are seeing increased interest, but it’s not clear how long those inventories can sustain production. The concern isn’t whether there will be restructuring of trade routes—it’s how long substitution efforts might take, and at what cost.
From our vantage point, this points not only to supply uncertainty but also to potential reshaping of futures activity. If we assume that physical shortages translate into higher near-term pricing, the calendar spreads may steepen. Contracts with short-dated maturities could exhibit tighter availability, pushing spot prices noticeably above deferred months. For those trading along the curve, short positions exposed before April 4 might now struggle if delivery dates are no longer feasible under the licensing delays. Covering those open positions sooner rather than later might help avoid further risk.
Impact Of Supply Chain Disruptions
There is, of course, a question of alternate sources. Countries with smaller deposits, or with less mature refining capacity, are unlikely to be able to scale exports to plug the current gap swiftly. That doesn’t mean new flows won’t be priced in. We’ve begun noticing preliminary activity suggesting increased speculative interest in rare earth alternatives—both from producers looking to lift capacity and from consumers seeking longer-term contractual arrangements away from China.
Buyers are already approaching the spot market with more urgency. The moment sentiment shifts towards panic, price volatility can amplify beyond fundamentals. Traders would do well to watch the bid-offer spreads closely. A widening spread, without parallel changes in volume, may point toward deeper illiquidity rather than renewed direction. That’s worth tracking if you’re involved in options strategies tied to rare earths, since implied volatility could begin to decouple from realised movements.
It’s notable that customs points remain jammed with outgoing product. That strongly implies the issue is not just policy, but administration. Any existing positions tied to physical delivery should be reviewed, especially those requiring Asian exiting ports. The real risk isn’t just shipment refusal but extended impoundment, with cargoes sitting idle for weeks. Initiating conversations with counterparties early this week about acceptable delays or swaps may be productive.
Furthermore, the increased chance of policy tightening in adjacent materials markets should not be ignored. Governments in other resource-rich regions may interpret the reversal in Chinese flows as a moment to push pricing power. This may trigger copycat regulations, or simply embolden local sellers to renegotiate fixed terms. Watch for movement in similar export-focused sectors like tungsten or graphite.
Huang’s commentary earlier in the week gives us a useful anchor for thinking about forward guidance. While the long-term extraction and separation capacity remains intact, the bottleneck today is bureaucratic. If this persists into Q3, derivative markets may begin pricing in industrial slowdowns in sectors like magnets, batteries, and defence components. Calendar pricing curves for producers tied into those chains—particularly in energy transition and defence—might flatten as a result. Leveraged traders betting on earnings cycles should consider revisiting those exposure models.
To that end, it may benefit market participants to broaden their focus beyond pure volume metrics. Time-to-clear, licence approval rates, and regional port utilisation may offer more timely clues. If we see those metrics worsen, the case for backwardation strengthens further.
Han’s earlier signals that approval windows might lengthen past 90 days only reinforce the need to review cross-month exposure. Rolling positions forward might become more expensive before liquidity improves. Reversing into cash or taking a wait-and-hold stance with minimal leverage could be prudent for those exposed to spot volatility. Any break below three-month output forecasts from non-Chinese sources would, in all likelihood, push premiums higher still.
