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Chinese manufacturers that use rare earths are seizing a “historic” opportunity to move up the industrial value chain and squeeze their foreign rivals, as Beijing’s export controls on critical minerals hit their Japanese counterparts.
China curbed exports of rare earths to dozens of Japanese companies this year after Prime Minister Sanae Takaichi made remarks about Tokyo’s role in a hypothetical conflict over Taiwan, expanding restrictions that were already in place.
The controls have put pressure on Japanese manufacturers. Rare earths are indispensable additives in advanced materials and high-end production, used to make everything from magnets in electric cars to ceramics in chipmaking.
Previously, Japanese suppliers would import rare earths from China to make materials and components, which were then sold to Chinese companies to make end products. Those companies are now turning to domestic suppliers, which have seized the moment to race ahead.
This has been most apparent in the processing of yttrium, one of the rare earth elements added to Beijing’s export control list last year.
China accounts for more than 90 per cent of global production capacity for yttrium oxide. Among its key uses are stabilising zirconia, which is needed to make numerous products, including electronics and industrial ceramics.
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Rao Xinwei, a Shanghai-based analyst at commodities data group Mysteel, said China’s zirconia industry was stronger in the mid- to low-end market but struggled to compete with France and Japan at the high end.
Japanese companies, led by Tosoh, Daiichi Kigenso Kagaku and Shin-Etsu, are world leaders in purifying and processing high-quality zirconia and yttrium-based materials.
“The export controls on yttrium oxide have created a historic opportunity for Chinese companies,” said Rao.
Chinese producers were now accelerating efforts to secure overseas orders, he said, “seizing this window of opportunity” to enhance their technological capabilities and expand global market share.
In a sign of investor optimism, the shares of six Chinese companies making zirconia- and yttrium-based products have soared by a range of 74 per cent to 312 per cent since the start of the year.
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Beijing’s controls have led to a widening price gap between Chinese and overseas markets.
Yttrium oxide is quoted at $7.88 per kg in China, compared with $1,175 per kg in Europe, according to Baiinfo, a Chinese commodities data provider. Other rare-earth compounds have smaller yet sizeable price gaps.
An industry insider in Japan said the most severe supply chain squeeze was from yttrium, but the country was getting by, while zirconia was not an issue.
Aidite, a Chinese maker of dentistry materials and equipment, told the FT it had received a notice from Tosoh, its Japanese zirconia powder supplier, that deliveries would be suspended at a later date.
Aidite declined to say when the suspension would begin. Tosoh denied deliveries had been suspended to Aidite.
Most of Tosoh’s zirconia supplies for the dental market go to the US and Europe, according to people familiar with the matter. Rare earths supply disruptions would affect western users through product shortages or increased reliance on Chinese suppliers.
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Japan is not the only target of China’s rare-earth controls. Beijing used export restrictions to respond to President Donald Trump’s sweeping “liberation day” tariffs last year, which analysts said had shifted the balance of power in US-China relations towards Beijing.
While the US has stepped up efforts to develop its own rare earths supply chain, any significant reduction in China’s dominance is expected to take years, if not decades, said analysts. They also expect more Chinese companies to exploit export controls to rise up the industrial value chain.
Cory Combs, associate director of Beijing-based consultancy Trivium China, said Chinese producers of magnets and other rare-earth products had been catching up to, or were at parity with, Japanese producers for the past several years.
“As Chinese controls force a drawdown of Japanese rare-earth inventories, Japanese producers’ costs necessarily rise and Chinese competitors stand to benefit,” he said.
Additional contributions from Nian Liu in Shanghai
