elements total
global REE refining
dependence on China
(MOFCOM Notice No. 18)
1. The Regulatory Framework: What Is MOFCOM Notice No. 18?
On April 4, 2025, China's Ministry of Commerce (MOFCOM) and the General Administration of Customs jointly issued MOFCOM Announcement No. 18 of 2025, imposing export licensing requirements on seven categories of heavy and medium rare earth elements. The controlled substances include samarium (Sm), gadolinium (Gd), terbium (Tb), dysprosium (Dy), lutetium (Lu), scandium (Sc), and yttrium (Y), along with their oxides, alloys, compounds, mixed materials, and magnetic products — covering multiple stages of the supply chain from raw ore to finished components.
Critically, this is not an export ban — it is a licensing regime. Exporters must apply to MOFCOM for an export license and declare the controlled nature of the goods in customs filings. The review process introduces timing uncertainty, and even where licenses are eventually granted, the unpredictability of delivery schedules is itself a supply chain disruption that companies must now price in.
- 2010 vs. 2025: The 2010 de facto embargo targeted Japan alone and was short-lived. The 2025 licensing regime is global in scope and designed as a durable administrative control — it does not require escalation to maintain pressure.
- Focus on heavy REEs: Light rare earths such as neodymium (Nd) are not directly controlled. But the heavy and medium REEs — Dy, Tb, Y — are the least substitutable elements in high-performance magnets, semiconductor equipment, and defense systems.
- US-China trade war context: The controls were announced on the same day the US announced sweeping tariffs, framing rare earths as a retaliatory trade lever. Political resolution is correspondingly difficult, and the controls are likely to persist as a negotiating tool.
2. The 17 Elements: A Role Map for Each Rare Earth
| Element (Symbol) | Primary Applications | Export Control | Substitution Difficulty |
|---|---|---|---|
| Neodymium (Nd) | NdFeB permanent magnets (EV motors, HDDs, speakers) | Not controlled (light REE) | Extremely High |
| Dysprosium (Dy) | NdFeB high-temperature additive (EVs, military systems) | Controlled | Extremely High |
| Terbium (Tb) | Magnet additive, phosphors, sonar transducers | Controlled | Extremely High |
| Yttrium (Y) | Plasma etch chamber components, phosphors, lasers | Controlled | High |
| Cerium (Ce) | CMP slurry for wafer polishing, optical glass polishing | Not controlled (light REE) | Moderate |
| Lanthanum (La) | High-k gate dielectrics, optical lenses | Not controlled (light REE) | Moderate |
| Praseodymium (Pr) | Nd-Pr hybrid magnets (cost reduction over pure Nd) | Not controlled (light REE) | Moderate |
| Samarium (Sm) | SmCo magnets (high-temp, aerospace, defense) | Controlled | Extremely High |
| Gadolinium (Gd) | MRI contrast agents, neutron absorption (reactors), magnetic materials | Controlled | High |
| Scandium (Sc) | Solid oxide fuel cells (SOFC), aluminum alloy strengthening | Controlled | Extremely High |
3. EV Dependency: "Driving on Rare Earths"
Rare earth dependency in electric vehicles flows primarily through permanent magnets in the drive motor. The dominant architecture — the permanent magnet synchronous motor (PMSM) — uses roughly 2–3 kg of NdFeB (neodymium-iron-boron) magnet per vehicle. To maintain performance at high temperatures, dysprosium (Dy) and terbium (Tb) are added as essential dopants.
A common misconception is that since neodymium itself is not controlled, EV magnets are safe. In reality, restrictions on Dy and Tb directly affect high-grade magnets for high-power EVs, industrial robots, and electrified aircraft. Standard passenger EV grades have some design latitude to reduce Dy content; high-output and specialty applications do not.
4. Semiconductor Dependency: The Hidden Exposure in Fab Processes
Rare earth dependency in the semiconductor supply chain does not appear in finished chips — it is embedded across multiple manufacturing process steps. Many companies that do not buy rare earths directly are nonetheless exposed through their equipment suppliers and consumable material vendors.
① CMP Slurry (Chemical Mechanical Planarization): Cerium Oxide
Wafer planarization — a process repeated dozens of times in advanced logic chip manufacturing — relies on cerium oxide (CeO₂) as the abrasive in CMP slurries. Cerium is not currently controlled (light REE), but China's dominance in cerium refining means procurement concentration risk persists. For leading-edge nodes where tens of CMP steps are applied per wafer, stable CMP slurry supply is a prerequisite for uninterrupted production.
② Plasma Etch Chamber Components: Yttrium (Y)
The inner walls and fixtures of dry (plasma) etching equipment — the most critical patterning step in chip fabrication — are widely made from yttrium oxide (Y₂O₃) ceramic due to its exceptional plasma corrosion resistance. Applied Materials, Lam Research, and other major OEMs rely on Y₂O₃ components as consumables that must be replaced regularly. Since yttrium is now a controlled element, supplies of these critical wear parts are directly affected.
③ High-k Gate Dielectrics: Lanthanum Oxide
Sub-5nm advanced logic transistors use lanthanum oxide (La₂O₃)-based high-k dielectric materials for gate insulation. Lanthanum is currently not controlled, but the underlying procurement concentration in China remains a structural risk.
5. Defense Dependency: Rare Earths as a National Security Issue
Rare earth dependency in defense systems has been formally acknowledged as a national security concern by the U.S. Department of Defense, the UK MOD, and Japan's Ministry of Defense. U.S. estimates suggest that a single F-35 fighter jet requires approximately 417 kg of rare earth materials in its manufacture.
| System | Rare Earths Used | Application | Under China's Controls |
|---|---|---|---|
| F-35 / Fighter Jets | Nd, Dy, Sm, Y | Actuators, gyroscopes, radar system magnets | Partially Controlled |
| PAC-3 Missiles | Sm, Co, Nd | SmCo magnets for high-temp, high-speed actuators | Sm Controlled |
| Aegis Radar Systems | Nd, Dy, Y | Phased-array antenna magnetic components | Dy & Y Controlled |
| Drones / UAVs | Nd, Dy, Tb | Lightweight, high-power motors (propulsion, gimbal) | Dy & Tb Controlled |
| Submarine Sonar | Tb, Dy (magnetostrictive) | Acoustic transducers | Both Controlled |
| Night Vision Devices | La, Ce, Gd | Optical glass, phosphors | Gd Controlled |
Japan's Ministry of Defense and Acquisition, Technology & Logistics Agency (ATLA) have conducted internal supply chain surveys for major platforms, though results are not publicly disclosed. The consensus among defense procurement officials is that short-term exposure can be managed through stockpiles and allied-nation coordination, but long-term supply chain restructuring is unavoidable.
6. Japan's Procurement Reality
Japan imports approximately 60% of its rare earths from China. Since the 2010 de facto embargo, supply diversification has been an explicit national strategy — with progress made through expanded procurement from Lynas (Australia), increased imports from Mountain Pass (California), and utilization of Lynas's Malaysian processing facility. However, the critical bottleneck remains the separation and refining stage.
7. Alternative Sourcing: Progress and Real Limits
8. Implications for Materials Investors: JX Metals & Sumitomo Metal Mining
The rare earth export controls create differentiated investment implications for Japan's major non-ferrous materials companies. As analyzed in detail in our SMM vs JX Metals comparison article, the two companies hold fundamentally different positions.
Sumitomo Metal Mining (SMM) is primarily a nickel and cobalt-based battery materials producer, but is exposed to rising raw material costs through subsidiary involvement in EV magnet material procurement chains — and through the broader impact of rare earth price volatility on battery-adjacent supply chains. Meanwhile, JX Metals has indirect exposure through semiconductor target materials: as chipmakers accelerate the search for Y₂O₃ chamber component alternatives, demand for JX Metals' high-purity specialty metal materials could increase as a knock-on effect.
9. Three Scenarios for 2026–2028
The most probable outcome — the baseline scenario (estimated probability: 55%) — sees the licensing regime maintained as an ongoing administrative control. Most export licenses are eventually granted, but with processing delays that create persistent scheduling uncertainty. Companies absorb the cost of "when will it arrive?" as a new operating reality, while accelerating alternative sourcing reviews and inventory buffers.
In the pessimistic scenario (25% probability), escalating US-China tensions prompt China to tighten controls further — moving toward de facto export suspensions for specific product categories or destination countries. This scenario would trigger significant disruption to EV and defense supply chains in advanced economies, and would likely drive strong share price reactions in Lynas, REE-focused ETFs, and Japanese REE recycling technology companies.
The optimistic scenario (20% probability) requires meaningful diplomatic progress on the US-China trade framework, allowing China to ease licensing requirements as a confidence-building measure. In this case, supply availability normalizes and the medium-term strategic case for supply chain diversification weakens somewhat — though structural investment in non-Chinese REE capacity would likely continue driven by national security policy rather than pure economics.