China has quietly issued its first rare earth mining and smelting quotas for 2025. This signals a new strategy to control this important sector more tightly. Unlike previous years, when quotas were announced publicly, they were shared directly with state-owned companies this time, with a focus on keeping the information confidential for security reasons. China is the top producer of 17 essential minerals used in electric vehicles, wind turbines, and defense systems. The quota system plays a crucial role in managing global supply. China’s influence in this area has grown, especially amid ongoing trade tensions with the United States and the European Union. Recently, China added rare earth elements to its export restriction list in response to U.S. tariff increases, impacting global supply chains and causing some foreign car manufacturers to cut back production.

Changes in Quota Announcement

Normally, China’s Ministry of Industry and Information Technology announces quotas early in the year. However, this year’s process was delayed and secretive. In 2023, mining quotas only increased by 5.9%, a significant reduction from previous years. Control over production and exports has become even more focused, as access to quotas has shrunk from six firms to two. The delay was partly due to discussions about whether to include imported ore in the quotas, which faced pushback from companies that rely on imports. This quiet issuance of quotas clearly shows Beijing’s intention to tighten control over the rare earths market, creating uncertainty. The secrecy suggests that Beijing may aim to manage supply and pricing, potentially leading to price increases. Traders should view this lack of transparency as a bullish sign for the industry. Recent market data backs this view, showing that prices for key elements are already rising. For instance, the price of Dysprosium Oxide, crucial for electric vehicle motors and wind turbines, has jumped over 10% in the last two months. This appears to be a direct response to the market sensing a tighter supply situation even before the news broke.

Impact of Trade Frictions

This move also relates to rising trade tensions, especially after Washington’s recent 25% tariff on Chinese permanent magnets. China dominates the market, processing nearly 90% of the world’s rare earths, making its supply decisions a powerful tool for retaliation. The current secretive quota system allows China to make sudden changes that could significantly affect global availability. History teaches us that such actions can lead to extreme price swings. For example, in 2010, when China halted exports to Japan, prices for some elements skyrocketed by hundreds of percent. The recent consolidation of quotas under just two state-owned companies makes it easier for China to trigger a similar shock to supply. This history suggests that any disruption, whether deliberate or accidental, could greatly impact prices. Thus, we recommend that traders position themselves for potential price increases in the coming weeks. Establishing long positions through call options on rare earth ETFs or futures contracts for elements like Neodymium would be a smart strategy. This method lets traders take advantage of the expected volatility and price increases resulting from these supply-side measures. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now