Rare Earths: Navigating Geopolitical Shifts and Supply Chain Risks in a Post-China World

The recent 32% surge in China's rare earth exports in June 2025, following months of restrictive trade policies, underscores a pivotal shift in global mineral geopolitics. While this rebound signals potential flexibility in Beijing's export controls, it also highlights the fragility of supply chains reliant on China's dominance. For investors, this volatility creates both opportunities and risks in a sector where strategic minerals underpin everything from smartphones to missiles.

The Geopolitical Tightrope: China's Export Swings

China's rare earth policy has long been a geopolitical chess piece. In April 2023, Beijing imposed non-automatic export licenses on seven critical heavy rare earths (e.g., dysprosium, terbium) and magnets, targeting U.S. defense firms. By June 2025, however, a U.S.-China trade deal temporarily eased restrictions, allowing a 32% export surge. This “truce” was framed as reciprocity for Washington lifting ethane export curbs, but it remains fragile: military-use elements like samarium remain under control, and licensing delays persist.

The June surge reflects a pragmatic recalibration—China seeks to avoid alienating global buyers while retaining leverage over critical markets. Yet, the data reveals a deeper truth: China's dominance isn't absolute. While it processes 71% of global rare earths (excluding illegal production), its structural advantages are now being challenged by diversification efforts.

Diversification: The U.S.-Australia-Malaysia Axis

The U.S. is aggressively reducing its reliance on Chinese refining through partnerships like the U.S.-Australia Critical Minerals Agreement. Australia's Lynas Corporation (LYD), the world's second-largest rare earth producer, is expanding its Texas refinery with $150M in DOD grants, targeting 1,000 tons of magnet production by 2026. Meanwhile, Malaysia's Batu Hijau mine (owned by Freeport-McMoRan) and Lynas' Browns Range project in Australia are key to scaling non-Chinese supply.

Recyclers are also critical. Companies like Apple (AAPL) and Toyota (TM) are advancing closed-loop systems, with Apple aiming for 100% recycled rare earths in magnets by 2025. Recycling startups like Elysis (a joint venture between Rio Tinto and Alcoa) and Avalon Advanced Materials (AVL.V) are pioneering technologies to recover rare earths from e-waste, reducing virgin supply needs.

Risks: Geopolitical Volatility and Technical Barriers

Despite progress, risks remain. China's near-monopoly in heavy rare earth separation (e.g., dysprosium for missile guidance systems) poses existential threats to defense supply chains. A May 2025 data point shows U.S. rare earth magnet imports fell 93% year-over-year, forcing companies like Lockheed Martin (LMT) to ration materials for F-35 jets.

Environmental hurdles also slow non-Chinese production. Lynas' Texas refinery faces permitting delays, while Australia's Mount Weld mine struggles with low-grade ore. Meanwhile, China's $439M DOD investments in U.S. rare earth facilities (MP Materials, Mountain Pass) have yet to match Beijing's scale—China produced 138,000 tons of NdFeB magnets in 2018, versus MP's 1,000-ton 2025 target.

Investment Strategy: Miners, Recyclers, and ETFs

Investors should focus on companies positioned to de-risk supply chains while hedging against geopolitical shocks:

1. Lynas Corporation (LYD): A core holding due to its advanced processing capabilities and U.S. partnerships. Its stock has risen 25% YTD amid trade deal optimism.
2. Recyclers: Apple (AAPL) and Toyota (TM) benefit from circular economy trends, but niche players like Elysis and Avalon Advanced Materials offer higher upside.
3. ETFs: The VanEck Rare Earth/Strategic Metals ETF (RETH) provides diversified exposure to miners (e.g., Molycorp, Northern Minerals) and tech firms.
4. U.S. Miners: MP Materials (MP), the sole U.S. rare earth refiner, could see a valuation jump if it meets Texas refinery targets.

Conclusion: A New Era of Mineral Diplomacy

China's June export surge is less a surrender than a tactical pause in its resource leverage strategy. Investors must balance optimism over diversification with caution about lingering risks—geopolitical flare-ups, technical bottlenecks, and China's unmatched refining prowess.

Recommendation: Overweight rare earth miners (LYD, MP) and recyclers, while using RETH for broad exposure. Avoid pure-play defense contractors reliant on Chinese heavy rare earths unless they secure alternative supply. The rare earth market is a high-reward, high-risk arena—navigate it with eyes wide open.

Data as of July 2025. Past performance does not guarantee future results.