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Rare earth magnets to be covered by export controls

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Export controls cover all countries, not just US

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Manufacturers scrambling for access outside China

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China's move seen as opening salvo in U.S. trade spat

(Adds reaction from U.S. mining companies, manufacturers)

By Lewis Jackson, Amy Lv, Eric Onstad and Ernest Scheyder

BEIJING/LONDON, April 4 (Reuters) - China placed export

restrictions on rare earth elements on Friday as part of its

sweeping response to U.S. President Donald Trump's tariffs,

squeezing supply to the West of minerals used to make weapons,

electronics and a range of consumer goods.

The move, which Beijing had long hinted was possible,

further ratchets up trade tensions between the world's two

largest economies and leaves American manufacturers scrambling

for fresh supplies of the critical minerals they have relied

upon for decades.

China produces around 90% of the world's rare earths, a

group of 17 elements used across the defense, electric vehicle,

energy and electronics industries. The United States has only

one rare earths mine and most of its supply comes from China.

Beijing announced the controls late on Friday as part of a

broader package of tariffs and company restrictions in

retaliation for Trump's decision to hike tariffs against most

Chinese products to 54%.

The export curbs include not only mined minerals but

permanent magnets and other finished products that will be

difficult to replace, analysts said.

The move, which affects exports to all countries, not just

the U.S., is the latest demonstration of China's ability to

weaponize its dominance over the mining and processing of the

critical minerals.

Seven categories of medium and heavy rare earths, including

samarium, gadolinium, terbium, dysprosium, lutetium, scandium

and yttrium-related items, will be placed on an export control

list as of April 4, according to a Ministry of Commerce release.

Lockheed Martin ( LMT ), Tesla and Apple ( AAPL )

are among the U.S. companies that use Chinese rare earths in

their supply chains.

"China made that list strategically," said Mel Sanderson, a

director at American Rare Earths ( ARRNF ), which is building a

Wyoming rare earths mine it hopes to open by 2029, and co-chair

of the Critical Minerals Institute trade group. "They picked the

things that are crucial for the U.S. economy."

While the export controls stop short of an outright ban,

Beijing can throttle shipments by restricting the amount of

export licenses it issues.

China's move will create "a scramble for access to the

limited sources of alternative supply - namely in Japan and

South Korea," said Ryan Castilloux, founder of consultancy

Adamas Intelligence.

'WILLING TO ESCALATE'

Two industry sources said Chinese export restrictions on

some rare earths are a concern for some U.S. aerospace

manufacturers because they are sole-sourced from China for use

in avionics.

RTX and Honeywell ( HON ) declined comment. Boeing ( BA )

and GE did not respond to requests for comment.

The U.S. government has stockpiles of some rare earths, but

not enough to supply its defense contractors in perpetuity.

Beijing has already imposed outright bans on the export of

three metals to the U.S. and slapped export controls on many

others.

The moves to restrict heavy rare earths are especially

important because China has even tighter control over these

elements, said David Merriman at consultancy Project Blue.

"There is currently only one HREE (heavy rare earth element)

focused operation outside of China, Myanmar and Laos," he said,

adding that China has close involvement in supply chains from

Myanmar and Laos.

That mine, Serra Verde in Brazil, ships minerals to China

for processing, Merriman added.

"China is willing to escalate," said Nathan Picarsic,

co-founder of the geopolitical consulting firm Horizon Advisory.

"This is likely an opening salvo in an iterative game of

negotiation with the U.S."

GALVANIZE WEST

China dominates the complex and dirty refining process for

rare earths and controls output via a quota system that it has

tightened.

Friday's move is likely to galvanize efforts in the West to

build alternative supply chains, according to Mercator Institute

for China Studies analyst Jacob Gunter. Progress toward that

goal has been slow.

"It's going to take time," said Mark Smith, CEO of NioCorp

Developments ( NB ), which has permits for a $1.2 billion rare

earths mine in Nebraska but needs financing.

Shares of NioCorp fell 4.8% on Friday. Shares of MP

Materials ( MP ) - which owns the only U.S. rare earths mine and

relies in part on China for processing - fell 8%.

Representatives for MP were not immediately available to

comment.

Massachusetts-based rare earths processing startup Phoenix

Tailings, which recycles the metals from electronic waste and

other sources, aims to boost its annual production from 40

metric tons today to 4,000 metric tons by 2027.

"China's moves just further encourages us to double down on

our expansion plans," said Phoenix CEO Nick Myers.

For companies that buy equipment from rare earths industry

suppliers, the worry is compounded that they may lose access to

important machinery that is made in China.

"The real concern for us is whether this trade conflict

grows further," said Wade Senti, president of Florida-based

Advanced Magnet Lab.