China’s shipments of rare earth magnets to the U.S. jumped over 660% in June, reaching 353 metric tons. This surge followed trade deals in June that lifted some restrictions on rare earth exports, which are vital for electric vehicles and wind turbines. Previously, in April, China added certain rare earth products to its export restriction list due to U.S. tariffs. This move led to delays in licenses and a drop in shipments during April and May. As a result, some automakers outside of China had to cut production because of rare earth magnet shortages.

Global Exports Rebound

In June, China’s overall rare earth magnet exports soared to 3,188 tons, a 157.5% increase from May. However, this amount is still 38% lower than what was shipped in June 2024. China supplies over 90% of the world’s rare earth magnets, impacting industries like electric vehicles and wind energy around the globe. With this surge in rare earth magnet exports, it signals a positive outlook for U.S. manufacturers that faced challenges before. This includes automakers and green energy companies whose production was affected by supply chain issues. The International Energy Agency predicts that nearly one in five cars sold worldwide this year will be electric. A steady supply of key components reduces risks for this sector. The plan to resume sales of specialized AI chips to China is a major positive development for the involved chipmaker. It might be wise to consider call options on the company, as this opens up a key market that had faced restrictions due to geopolitical tensions. This step shows a practical way to manage export controls and secure revenue that was once uncertain.

Tentative Thaw In Trade Relations

This situation indicates a broader, but cautious, improvement in trade relations, which often leads to less market volatility. In the past, escalations in the U.S.-China trade conflict, like the tariffs from 2018-2019, caused spikes in the VIX index. Thus, any reduction in tensions suggests a more stable market ahead. We see this as a good time to sell volatility or enter positions in broad market index futures. For a more focused investment opportunity, we’re considering derivatives linked to the VanEck Rare Earth/Strategic Metals ETF (REMX). The relief in supply issues should lower the implied volatility for this ETF, making strategies like selling put spreads appealing. We expect more bullish call buying on REMX as investors forecast a more reliable supply of these essential materials. However, even with the monthly increase, global export volumes remain significantly lower than last year’s levels. This suggests that the supply chain is still delicate and affected by policy changes, as China’s Ministry of Commerce enforces a strict export permit system. Thus, our strategies should include defined risks, such as using credit or debit spreads, rather than exposing ourselves to the unlimited risks associated with naked short options. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now