Chinese rare-earth dealers find ways to dodge Beijing’s export restrictions
Companies are tweaking magnet formulas and embedding them in motors to keep selling to the West.
Chinese rare-earth magnet companies are finding workarounds to their government’s onerous export restrictions, as they seek to keep sales flowing to Western buyers without falling afoul of Chinese authorities.
The companies are tweaking magnet formulas to avoid using certain restricted rare-earth elements and devising other strategies to get powerful magnets out of the country, like embedding them in motors, according to employees of several large Chinese magnet companies and Western firms that buy from them.
The strategies—which are legal—don’t work perfectly and the new magnets sometimes behave differently than traditional ones. But Chinese companies have huge and growing magnet-making capacity, and say they are determined to find legal ways to maintain exports.
The drive is the latest twist in a long-running battle between China and the U.S. over rare earths. China dominates the global supply of rare earths and the magnets they are made of. They are crucial to making everything from cars to wind turbines and jet fighters.
Earlier this year, as Beijing traded blows with the Trump administration over U.S. tariffs on Chinese goods, Chinese authorities set up a new export-licensing regime, choking off the supply of rare earths and inflicting pain on Western businesses. As part of an October deal with the U.S., China agreed to postpone certain impending restrictions, although Western businesses worry the supply will nonetheless be insufficient.
That has motivated Chinese rare-earth companies to find ways to ease the flow.
One approach has been to use technical innovations. Certain powerful types of rare-earth magnets—often used for car engines, robotics and industrial machinery—typically use small quantities of dysprosium and terbium, two “heavy" rare-earth elements, to allow magnets to function at high temperatures. Chinese rules introduced in April mean that magnets with even small amounts of these materials require export licenses. It often takes weeks or months to gain approval—if it comes at all, according to rare-earth companies and traders.
That has spurred a race by Chinese magnet companies to make better magnets without heavy rare earths. They are making such magnets more heat-resistant by, for instance, grinding the magnet material until it is extremely fine. That requires specialized machinery and adds significant costs. While the development of magnets that are free of heavy rare earths has gone on for years, the export restrictions have prompted a new push.
The resulting magnets are designed to operate at temperatures of up to approximately 300 degrees Fahrenheit, which is sufficient for use in many types of home appliances. Carmakers, aircraft manufacturers and others will often require magnets with even greater heat tolerance.
Chinese companies marketing magnets free of the regulated heavy rare earths include Yonjumag, Anhui Hanhai New Material, Zhaobao Magnet and X-Mag. X-Mag has posted detailed charts showing its progress in developing new heat-resistant magnets that don’t require export licenses.
“As global supply chains for heavy rare earth elements tighten," X-Mag said in a social-media post in October, developing magnet grades free of restricted heavy rare earths “has become increasingly critical."
Zhaobao Magnet said on LinkedIn in October that, in response to export-control regulations, the company was “continuously developing new high-performance magnet series free of restricted elements."
After China announced its initial export controls in April, Yonjumag published a brochure for foreign buyers listing “counter measures," including selling magnets that are free of restricted heavy rare earths. It said it aims to develop even higher-grade magnets free of the restricted elements by the end of the year.
Many Western companies are buying such magnets, traders say, despite concerns that they might not always be as effective as their Chinese makers claim.
“Not being able to use [restricted heavy rare earths] does make the high-temperature performance slightly weaker, but for most customers, having a workable magnet is far better than having none," Dylan Kui, a Chinese magnet company marketer, wrote on LinkedIn in October under a post detailing his company’s magnet performance at different temperatures.
In a sign of the political sensitivity surrounding rare earths, Bade Wu, whose LinkedIn profile lists him as general manager of a Chinese magnet manufacturer, commented under that post that Kui should be careful about providing such technical information, saying it could pose “regulatory risks." Kui responded that he was sharing standard technical information, not revealing technological secrets.
Chinese companies are finding other workarounds. For instance, while the export of rare-earth magnets is restricted in China, the applications they are used in, such as motors, aren’t. So Chinese companies are now working with local parts manufacturers to deliver to Western clients motors and other parts that have magnets already embedded in them.
Given the political sensitivity surrounding rare earths, Chinese companies are careful to respect the law. In recent months, Beijing has announced crackdowns on smuggling of critical minerals like rare earths. Some Chinese magnet makers have appointed compliance officers to ensure their exports are hewing to the law.
Chinese regulators have already taken steps to close loopholes. After new rare-earth export controls were announced in April, some Chinese magnet makers began tinkering with using the rare-earth element holmium in their magnet formulas to increase heat resistance, replacing terbium and dysprosium, which were restricted under the new rules.
In October, China added holmium to the list of restricted materials, putting an end to the gambit. After an agreement that month between President Trump and Chinese leader Xi Jinping to ease rare-earth exports, China delayed enforcement of holmium export controls by one year, potentially reviving the loophole for a time period.
While the workarounds offer potential short-term solutions, traders and rare-earth companies warn that Beijing could exploit China’s chokehold over rare earths again in the future for geopolitical gain. That could result in even tighter export controls and the closing of loopholes.
Chinese companies say foreign buyers are becoming frustrated and are developing alternative rare-earth sources outside of China.
“When those sources are mature and viable, we’re done with you," a foreign buyer told an employee of one Chinese magnet company, according to that employee.
Write to Jon Emont at jonathan.emont@wsj.com
topics
