China is the leading player in the global rare-earth supply chain, controlling nearly 70% of production and almost half of the world’s reserves. The European Chamber of Commerce in China reported that at least one member lost “millions of euros” due to China’s strict export policies on rare-earth materials.

Challenges for European Companies

European companies are facing hurdles because the licensing process for rare-earth exports is inconsistent. While some approvals improved earlier this year, obtaining export licenses is becoming tougher. Beijing’s rules require proof that shipments will not be used for military purposes and involve single-use licenses, increasing uncertainty for European businesses. The EU relies on China for almost half of its rare-earth imports, making companies vulnerable. With ongoing issues affecting confidence in foreign businesses, companies are warning of possible shortages by the third quarter. The European Chamber of Commerce is set to brief EU policymakers as China prepares its next five-year plan. China’s tightening control over rare-earth exports poses a clear threat to European industrial production, signaling potential market instability. This suggests buying options on the VSTOXX index, which tracks Euro Stoxx 50 volatility. The VSTOXX has already risen from 14 to over 18 in the past month, and we expect this upward trend to continue as shortages become more pressing. When making derivative trades, focus on sectors heavily reliant on these materials, like the automotive and renewable energy industries. Consider buying put options on major German automakers and wind turbine manufacturers, as they will likely face rising costs and possible production stoppages. Recent data from the German ZEW Economic Sentiment survey showed a drop to a six-month low in early September 2025, which reinforces our belief that industrial confidence is fragile.

Opportunities for Non-Chinese Rare Earth Producers

This geopolitical tension also creates opportunities for rare-earth producers outside of China, especially in Australia and the United States. In 2023, we saw these companies’ stock prices rise by more than 30% due to similar fears over export restrictions, and this trend could repeat itself. Buying call options on specific mining and processing firms is a direct way to capitalize on this shift in the supply chain. The broader economic outlook indicates a weakening Euro as the EU’s manufacturing sector faces significant challenges. Shorting EUR/USD futures makes sense, especially since the Eurozone’s latest manufacturing PMI reading for August 2025 has already dipped below the 50-point mark, indicating contraction. This supply shock is likely to worsen Europe’s economic situation compared to the United States. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now