China announces new controls on rare earth resources and traceability

News Analysis




China announces new controls on rare earth resources and traceability

China’s State Council announced new controls on rare earth extraction, use and exportation to better protect domestic resources.  

The Chinese State Council announced that it will implement new controls on the extraction, use and trade of rare earth products focussed on improving the traceability of products from 1 October 2024. The new controls essentially place all rare earth production under the control of the Chinese state, inhibiting the private exploitation of Chinese resources and further cracking down on the illegal production or trade of rare earth products. Penalties for infringements relating to the rare earth supply chain traceability or illegal production have also been clarified under the new regulation for both enterprises and individuals. 

The new regulations largely lay out a clearer picture of pre-existing restrictions within the Chinese domestic rare earths industry, which has been subject to total state control and stringent regulation on production volumes and environmental performance for several years. There is not expected to be a material impact on the current availability of supply within the Chinese domestic market, either at the mining, refining and downstream processing stages of the supply chain as a result of the new controls, as they bring little material change from the existing status quo, but do provide more clarity of the consequences for infringements. 

Article 16 of the State Council announcement could potentially have some impact on future supply and demand volumes for rare earths however, with national reserves now being monitored and controlled by the Development and Reform Commission, the Finance Department of the State Council, the Ministry of Industry and Information Technology, and the State Grain and Material Reserve Department. The generation of further stockpiled material could support rare earth demand and prices. Equally, the combination of rare earth reserves in the ground and in inventory in the Chinese rare earth reserve system could cause a reluctance to undertake new inventory purchases if in-situ reserves are deemed sufficient to protect domestic industry requirements.