CITIC Construction Investment’s report reveals that China’s rare earth export controls, implemented in April, led to a 50%+ monthly drop in permanent magnet exports—the lowest in five years. These materials, containing critical elements like dysprosium and terbium, are vital for EV motors, causing inventory shortages for global automakers. While the Ministry of Commerce pledged to approve compliant export licenses, supply constraints have already pushed up domestic rare earth prices.
Historical Precedent Suggests Price Divergence and Recovery. Past controls on metals like gallium and germanium saw initial domestic price stability or declines, while overseas prices surged. As exports resumed, domestic prices rose to narrow the gap with inflated global rates. Rare earths may follow this pattern: tightened controls first suppress exports, then gradual license approvals could fuel a domestic price rally as supply adjusts to meet pent-up demand.
Investment Implications: Valuation Upside for Rare Earth Sector. With export relaxations expected to align with higher global prices, Chinese rare earth producers stand to benefit from expanding profit margins. The sector’s recent undervaluation could reverse as price convergence boosts earnings, particularly for firms with export quotas and integrated supply chains. Investors should monitor license approvals and automakers’ inventory replenishment cycles for timing cues.
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