Trade tensions stemming from China’s move in April to restrict the export of various rare earth metals and related magnets may ease in the coming months.
Beijing has expressed willingness to expedite the approval process for exports to EU firms, while US President Donald Trump has indicated that Chinese President Xi Jinping has agreed to allow the flow of rare earth minerals and magnets to the US.
Reuters reported quoting a Chinese commerce ministry statement that various issues have been discussed between Chinese commerce minister Wang Wentao and EU trade commissioner Maros Sefcovic in Paris. China has attached importance to the EU’s concerns and “was willing to establish a green channel for qualified applications to speed up the approval process.”
Meanwhile, Trump’s comment came after a rare call with Xi aimed at resolving trade tensions that have been brewing over the topic. China has reportedly granted temporary export licenses to rare-earth suppliers of the top three US automakers.
China mines 70 per cent of the world’s rare earths and processes around 90 per cent of the ore that is mined globally, including its own. Its move to curb supply by asking importers to provide an end use certificate, to ensure that the magnets are not being used to make weapons or not being given to a third party, has upended the supply chains central to automakers, aerospace manufacturers, and semiconductor companies around the world.
India concern
According to data presented by the government in Parliament, the import of rare earth metals stood at 2270 tonnes in 2023-24, with China constituting around 65 per cent of the total imports.
A large part of the rare earth metal demand comes from the Indian automobile sector, where they are used in the manufacturing of components, particularly in electric vehicles. Rare earth metals are also used in the manufacturing of electronic components and as magnets used in wind turbines.
“The electric vehicle industry is currently navigating intense competitive pressure, especially between traditional players like Bajaj and TVS and newer entrants such as Ola and Ather. Amid this backdrop, growing tensions in the rare earth magnet supply chain could significantly disrupt dynamics, which can be short-term in nature but would affect significantly,” Prashant Tapse, senior vice president – research at Mehta Equities told The Telegraph.
“Current market data suggests that automakers have only 30–45 days of inventory to meet ongoing demand. Compounding the issue is the industry’s reliance on just-in-time delivery systems for these critical components. Any disruption could cause mismatches between production schedules and supply availability, creating severe bottlenecks. The Society of Indian Automobile Manufacturers (SIAM) has also flagged the issue to the government, warning that magnet inventories are critically low and could trigger production halts within 4-5 weeks,” he said.
The government has already started taking steps with the Directorate General of Foreign Trade, reportedly starting to issue certificates required under the new Chinese export rules.
The union budget has allocated ₹1,500 crore for the recycling of critical minerals under the National Critical Mineral Mission, and an incentive scheme for recycling is in the final stages of preparation.
However, market observers said New Delhi in the medium term will have to look at partnering with other nations while also working towards building a domestic supply chain. In the long term, the government may have to consider providing financial incentives to companies to mine and also manufacture rare earth magnets in India.