China Tightens the Vise on Rare Earths

Zero shipments. That's how much terbium and dysprosium oxide Japan received from China between November and May, according to Chinese customs data released last month. For a country that builds electric vehicles, industrial robots, and precision weapons, the cutoff is more than an inconvenience—it's a GDP-level threat.

A shortage of critical minerals is starting to affect the broader Japanese economy, Reuters reported, adding urgency for Prime Minister Sanae Takaichi's government to find alternatives after Beijing choked off shipments of certain key minerals following Takaichi's November comments about defending Taiwan . Japan's economy took a 0.9% GDP hit in 2010 during a previous bout of Chinese trade restrictions, but economists at Mizuho Research Institute warn the effect could be worse this time , given how deeply rare earths now penetrate supply chains for AI hardware, EVs, and defense systems.

The lithium and battery metals ETF traded at $76.17 on Monday, down +0.46%, according to market data—a reflection of broader uncertainty in critical minerals markets as geopolitical tensions reshape supply chains.

Can Anyone Break China's Processing Monopoly?

China is the leading refiner for 19 out of 20 important strategic minerals, with an average market share of 70%, according to the IEA's Global Critical Minerals Outlook 2025 . That dominance isn't rooted in geology— the country holds only about 35% of global rare earth reserves —but in its near-total control over the complex, capital-intensive processing stage.

China's 2026 revisions to its Import-Export Licensing Catalogue introduced new licensing requirements for several rare earth elements—including samarium, gadolinium, and lutetium compounds—administered jointly by the Ministry of Commerce and the Ministry of Industry and Information Technology . While Beijing suspended some of the most aggressive measures in November 2025, the 12-month suspension is set to expire on November 10, 2026, and current supply conditions indicate limited progress in reducing global dependence, according to analysis from EBC Financial Group .

The U.S. Department of Energy is betting on processing, not mining. DOE's Office of Critical Minerals and Energy Innovation awarded $75 million to five projects using coal and coal-based feedstocks to produce rare earth elements and other critical materials . A separate $67 million award went to Colorado School of Mines and ElementUSA for a rare earth processing facility in Louisiana designed to recover rare earth elements from alumina tailings, separate rare earth oxides, and refine them into rare earth metals —the type of midstream capability Western supply chains have long lacked.

What's India's Play?

India secured access to Indonesian critical minerals as Prime Minister Narendra Modi and President Prabowo Subianto forged deals during Modi's Jakarta visit on Tuesday, the Jakarta Globe reported . The countries signed memorandums of understanding for strengthening supply chains in critical minerals and steel, and Steel Authority of India and Indonesia's Krakatau Steel will establish a joint venture for stainless steel slab making in Indonesia, according to the Indonesian presidential palace .

Indonesia commands the world's largest reserves of nickel—62 million metric tons—but Jakarta has stopped exporting raw nickel ores and is limiting shipments to processed goods . Modi said a new partnership between Indian and Indonesian companies is beginning in the field of stainless steel and rare earth magnets .

The timing matters. India currently produces only four critical minerals—copper, graphite, phosphorous, and titanium—due to limited exploration and a lack of proper infrastructure and processing technology, according to the U.S. International Trade Administration . In India's national budget for the financial year 2026-2027, the government introduced a policy to create "rare earth corridors" in the states of Odisha, Kerala, Andhra Pradesh, and Tamil Nadu—hubs for mining, processing, and manufacturing high-performance rare earth magnets .

Lithium markets, meanwhile, remain volatile. Battery-grade lithium carbonate nearly doubled to $26,278 per ton in Q1 2026, with supply delays and speculative buying fueling the rally . But in the first week of February, lithium prices retreated as markets reassessed the outlook for power-storage demand and oversupply concerns emerged after Chilean exports jumped ahead of the Lunar New Year .

What Changed This Week

Japan's corporate warnings about rare earth shortages escalated sharply, with filings to the Tokyo Stock Exchange mentioning rare earths at unprecedented levels. India and Indonesia formalized critical minerals cooperation, positioning New Delhi to reduce reliance on Chinese supplies while Jakarta advances its downstream processing agenda. The U.S. continues to pour federal funding into processing infrastructure, signaling a strategic shift from mine development to midstream capacity—the real bottleneck in breaking China's grip.

What to Watch

November 10, 2026 looms large: that's when China's suspension of expanded rare earth export controls expires. Whether Beijing reinstates the measures will depend on the state of U.S.-China trade negotiations and geopolitical tensions over Taiwan. Watch for updates on the Colorado School of Mines processing facility in Louisiana, expected to begin operations in late 2026. India's rare earth corridors in Odisha and Kerala are slated for initial development milestones in Q4 2026. And Japan's Ministry of Economy, Trade and Industry is expected to announce new subsidy programs for rare earth stockpiling and alternative supply partnerships with Australia and the U.S. before year-end.