Asian Rare Earth Stocks Jump As China Tightens Export Curbs On Japan

Asian rare earth-related shares rallied sharply on Wednesday after China announced fresh export restrictions targeting Japan, stoking concerns over supply chain disruptions for critical materials used in electric vehicles, robotics and defence equipment.

Stocks linked to rare earth extraction, processing and recovery climbed across Japan, Australia and China after Beijing said it would ban the export of dual-use items for military purposes to Japan. The measures are the latest escalation in a diplomatic dispute triggered by comments from Japanese Prime Minister Sanae Takaichi on Taiwan.

In Tokyo, shares of Toyo Engineering Corp., which develops technology to recover rare earths from the seabed, surged 20%. Cerium producer Daiichi Kigenso Kagaku-Kogyo Co. jumped as much as 27% in intraday trade.

In Australia, Lynas Rare Earths Ltd. climbed up to 16%, its biggest one-day gain since July, while metals producer Australian Strategic Materials Ltd. rose nearly 10%.

What China Said?

The rally followed a statement from China’s commerce authorities that all dual-use items would be barred from export to Japan for military applications. A report in the state-run China Daily said the restrictions would include rare earth-related products, raising fears of tighter supplies for Japanese manufacturers.

“There are concerns that these controls could create bottlenecks for critical materials, which would likely push prices higher,” said Hiroshi Namioka, chief strategist at T&D Asset Management Co.. “That is supportive for companies involved in rare earth manufacturing, particularly as Japanese auto and defence firms accelerate efforts to diversify supply chains away from China.”

Rare earth elements are essential for high-performance magnets used in electric vehicles, wind turbines, industrial robots and advanced weapons systems. China dominates the sector, accounting for more than 90% of global refining capacity, according to data from the Japan Organization for Metals and Energy Security.

Analysts said stricter Chinese export rules would benefit upstream producers outside China. “Tighter controls would favour upstream players in other markets,” said Jeremy Yeo, an analyst at SMBC Nikko Securities Inc., citing companies such as Lynas and Japan’s Sojitz Corp.

Chinese stocks surge

Chinese rare earth stocks also advanced, with shares of China Rare Earth Resources and Technology Co. and JL Mag Rare-Earth Co. closing higher.

However, analysts said the impact on Chinese exporters may be limited. “Europe and other Asian markets account for the bulk of export demand, so the potential loss of Japanese market share is manageable,” Citi Research analysts led by Anna Wang wrote in a note.

While rare earth producers benefited, the prospect of more expensive and uncertain supply chains weighed on Japanese manufacturers exposed to China. Beijing’s latest export controls extend beyond rare earths to more than 800 items, ranging from chemicals and materials to sensors and electronic components.

Drags Topix Index

Shares of Toyota Motor Corp. fell 3%, their steepest decline since early November, dragging down Japan’s Topix index, which slid as much as 1% on the day. Heavy machinery and defence-linked firms also weakened, with Mitsubishi Heavy Industries Ltd. and Kawasaki Heavy Industries Ltd. losing more than 2% each.

“There’s increased caution around autos and other companies with significant exposure to China,” Namioka said. “With Japan-China tensions unlikely to ease soon, that could cap upside for Japanese equities in the near term.”

The export curbs underscore how geopolitical frictions are increasingly shaping global markets for critical minerals, as governments seek to balance national security concerns with the needs of industries reliant on stable and affordable supplies.