China's Rare Earth Export Controls and the Geopolitical Risk Your Procurement Team Is Not Pricing

In April 2025, China's Ministry of Commerce introduced mandatory export licensing for seven medium and heavy rare earth elements: samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium.[^3] The effect was immediate and measurable: rare earth export growth slowed to 4.8 percent year on year that month, fell 5.7 percent in May, then rebounded 60.3 percent in June as held shipments cleared the new licensing queue.[^1] The licensing regime has been in full enforcement since that date. Its downstream effects are now visible in production schedules, procurement budgets, and capital plans across automotive, aerospace, electronics, and defence sectors.

The common mistake is treating this as a compliance problem. It is a structural supply constraint that arrived wearing compliance clothing, and there is a second ratchet coming in November 2026.

How the Geostrategic Architecture of China's Export Controls Is Built

The IEA puts China at 91 percent of global rare earth refining capacity and 94 percent of permanent magnet production.[^2] Mining is the least concentrated stage of the chain and the least relevant one: the bottleneck is refining and magnet-making, not ore. The April 2025 licensing regime is not a standalone measure but the second layer of a control architecture that has been building for several years, with each new instrument extending further than the last.

• Announcement No. 18 (April 4, 2025). Mandatory export licensing for seven medium and heavy rare earth elements: samarium, gadolinium, terbium, dysprosium, lutetium, scandium and yttrium, each covering the metal, its alloys, its oxide and compounds containing it.[^3] What we infer: the breadth of that definition, rather than the licence itself, is what caught procurement teams out, because a part can fall inside the regime on trace content alone.
• MOFCOM Notification No. 61 (October 2025). The second ratchet extended controls extraterritorially for the first time. Non-Chinese manufacturers exporting products containing 0.1 percent or more of Chinese-origin rare earth content from one country to another are brought into the Chinese licensing process, alongside a 50 percent ownership rule mirroring the US Affiliates Rule adopted three weeks earlier.[^4] Notice No. 61 also bars licences outright for overseas military end users and for entities on China's control and watch lists.[^5] This provision was suspended until November 2026 as part of a diplomatic arrangement following the Xi-Trump summit in May 2025. The original April 2025 regime on the core seven elements kept running throughout, with licensed exports still clearing month by month through 2025.[^1]
• June 2026 entity list additions. On June 22, 2026 China barred exports of dual-use items to ten US firms, naming rare earth producers MP Materials and USA Rare Earth alongside defence contractors in aerospace, drones, synthetic-aperture radar and shipbuilding. The order also prohibits anyone outside China from transferring Chinese dual-use goods to them.[^6] The architecture is not being dismantled. It is being refined.

What the Procurement Math Actually Looks Like Under Partial Enforcement

The licensing queue alone changed the inventory economics for any company previously sourcing terbium or dysprosium on a just-in-time basis. The downstream pricing impact seen to date reflects partial enforcement only; the full enforcement scenario has not yet arrived.

• Inventory carrying cost. A company absorbing a two to four month licensing queue needs to carry four to five months of buffer stock simply to maintain continuity. For most manufacturers, that inventory position is a material budget line that did not exist in 2024 planning cycles.
• Price exposure outside China. Dysprosium and terbium oxide prices rose roughly four- to five-fold after the April 2025 controls, reaching about $1,450 and $4,500 per kilogram respectively by May 2026.[^7] Companies with European manufacturing operations pricing their input costs on pre-2025 assumptions are carrying a model error.
• Scale of full-enforcement exposure. The IEA's Global Critical Minerals Outlook 2026 estimated that full implementation of China's controls could put $6.5 trillion of downstream production outside China at risk each year, with the automotive sector alone facing as much as $3 trillion, more than 40 percent of it in the United States.[^8] G7 leaders pledged at the June 2026 summit to cap China's dominance at 60 percent by 2030. Current and announced projects outside China are expected to cover only half of mining needs and less than a fifth of magnet manufacturing demand by 2035.2
• Traceability gap. Most procurement functions currently have no chemical composition traceability by country of origin across their bills of materials. Building that capability is a compliance precondition under Notification No. 61 if the November 2026 provisions come into force. Five months is not enough time to build it from scratch.

What Risk Functions Should Be Tracking Before November 2026

If the November 2026 suspension lapses without renewal, a company in Germany or South Korea manufacturing a wind turbine containing Chinese-origin neodymium above the 0.1 percent threshold and selling that turbine to a US buyer would require a Chinese export license for that transaction.¹ Several actions cannot wait until after the expiry date.

• MOFCOM licensing approval rate tracking. Monitor approval rate trends for civilian versus dual-use applications between August and October 2026. A narrowing approval rate on civilian applications during that window is a high-confidence signal that the November suspension will lapse without extension.
• Diplomatic calendar monitoring. If October 2026 China-US diplomatic engagement is quiet and no formal extension announcement is made before early November, treat the lapse as a working assumption and confirm that contingency stock and alternative supplier positions are already in place.
• Bill-of-materials traceability audit. Identify which inputs across the full BOM contain Chinese-origin rare earth content above the 0.1 percent threshold. This is the minimum analytical precondition for any compliance analysis under Notification No. 61 and should not wait for the suspension to lapse.
• Alternative supplier pre-qualification. Capacity outside China is not arriving fast enough to matter on a procurement timescale: the IEA expects existing and announced projects to cover only about a quarter of refining demand and under a fifth of magnet demand outside China by 2035.² Pre-qualifying the suppliers that do exist, with full understanding of their lead times and capacity limits, is an action available now. Waiting for the November cliff removes that option.

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Fortius Intel note: The companies least disrupted by the April 2025 controls were the ones that had built watch indicator frameworks at least six months before the announcement. That window is considerably shorter for the November 2026 cliff. The observable signals are available now. The decision window is not open indefinitely.

Methodology: Analysis draws on MOFCOM regulatory filings, IEA supply chain data, published legal commentary from Holland & Knight, White & Case and CMS, and publicly reported pricing data. All cited sources are publicly available.

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Footnotes

Footnotes

1. White & Case, "China imposes extraterritorial jurisdiction and a 50% Rule for export controls on rare earth elements and other items," October 2025. https://www.whitecase.com/insight-alert/china-imposes-extraterritorial-jurisdiction-and-50-rule-export-controls-rare-earth (retrieved 21 August 2026). Source for: the first extraterritorial application of Chinese export controls, the 0.1 percent de minimis threshold, and the 50 percent ownership rule mirroring the US Affiliates Rule. ↩

2. International Energy Agency rare earth assessment, May 2026, as reported in "IEA: China Still Dominates Rare Earth Refining and Magnets." https://www.aerospace-and-defence.com/iea-warns-continued-rare-earth-reliance-china-a-32ddea17e88e3b2ca17e6e63db68d053/ (retrieved 21 August 2026). Source for: China holding 91 percent of global rare earth refining capacity and 94 percent of permanent magnet production, and the projection that Western projects cover only about a quarter of refining and under a fifth of magnet demand by 2035. ↩