China's Strategic Export Policies and Their Impact on Industrial and Precious Metals Markets

China's 2025 export policies have redefined the geopolitical and economic landscape of industrial and precious metals markets. By imposing strict controls on rare earth elements (REEs) such as dysprosium, terbium, and samarium—critical for defense technologies, electric vehicles (EVs), and renewable energy systems—Beijing has weaponized its dominance in the global supply chain. These measures, announced under Announcement No. 18 of 2025, require export licenses for seven heavy REEs and their compounds, effectively throttling access to materials that underpin 21st-century technologies. The move is not merely economic but a calculated geopolitical strategy to assert leverage over U.S. and allied industries, compounding tensions in the broader U.S.-China trade war.

Geopolitical Leverage and Market Volatility

China's control over 90% of global rare earth processing and 78% of refining capacity (projected to 2040) has created a bottleneck that no single nation can easily circumvent. The export restrictions have already triggered price surges: European dysprosium oxide prices tripled in a month, while neodymium-praseodymium (NdPr) prices in China rose 19.5% in Q2 2025.

The U.S. defense sector is particularly vulnerable. Heavy REEs are indispensable for high-temperature magnets in F-35 fighter jets, Virginia-class submarines, and Tomahawk missiles. With China controlling 99% of global heavy REE processing prior to 2023, the U.S. Department of Defense (DOD) has accelerated investments in domestic production. For instance, MP Materials, the sole U.S. rare earth mine operator, received $400 million in federal funding to expand its Mountain Pass facility. However, even at full capacity, MP Materials will produce only 1,000 tons of NdFeB magnets by 2025—less than 1% of China's 2018 output.

Investment Opportunities in Commodity-Driven Equities

The crisis has spurred a surge in demand for alternative suppliers and technologies. U.S.-based Energy Fuels Inc. has emerged as a key player, advancing pilot production of dysprosium and terbium oxides at its White Mesa Mill. The company's Donald Project in Australia, recently approved by the Victorian government, could supply mid and heavy REEs by late 2026, offering a non-Chinese source of critical materials.

Similarly, Australia's Lynas Corporation is constructing a $258 million rare earth refining plant in Texas, backed by U.S. DOD grants. This project aims to break China's monopoly on refining, a process that currently accounts for 90% of global capacity. Lynas' partnerships with Japan and France further underscore the shift toward diversified supply chains.

Japan's Caremag, supported by a 110 million euro joint investment with France, is another focal point. Its focus on dysprosium and terbium production could meet 20% of Japan's demand by 2026, reducing reliance on Chinese imports. Investors should monitor Caremag's progress as a proxy for regional supply chain resilience.

Futures Markets and Long-Term Trends

The futures market has mirrored the urgency of the supply crisis. With China tightening export controls and refining capacity concentrated in the country, demand for rare earths—especially heavy REEs—is projected to grow from 93 kilotons in 2023 to 169 kilotons by 2040.

Investors are also turning to alternative materials and recycling technologies. For example, researchers are exploring cerium-based substitutes for dysprosium in magnets, while Japan's NEDO is developing rare earth-free motor technologies. These innovations could mitigate long-term supply risks but remain in experimental stages.

Strategic Recommendations for Investors

1. Equities in Non-Chinese Producers: Prioritize companies like Energy Fuels, MP Materials, and Lynas, which are scaling production outside China.
2. Futures in Heavy REEs: Hedge against price volatility by investing in futures contracts for dysprosium and terbium, which have shown the highest price elasticity.
3. Diversified Supply Chain Plays: Consider equities in companies like Caremag and Australia's Browns Range project, which aim to reduce regional dependency on Chinese processing.
4. Recycling and Innovation: Monitor firms developing rare earth recycling technologies or alternative materials, which could reshape the market in the next decade.

China's export policies have forced a reevaluation of global supply chains, creating both risks and opportunities. While the U.S. and its allies face short-term bottlenecks, the long-term shift toward diversified production and technological innovation presents a compelling investment thesis. For investors, the key lies in balancing exposure to immediate volatility with long-term structural trends in critical mineral markets.