Chinese manufacturers that rely on rare earth materials are using Beijing’s export controls as an opportunity to move higher up the industrial supply chain and gain ground on foreign competitors, as restrictions on shipments to Japan place pressure on overseas producers.
China has reduced exports of rare earth materials to dozens of Japanese companies this year after remarks by Japanese Prime Minister Sanae Takaichi about Tokyo’s role in a possible conflict over Taiwan. The measures expanded existing controls on critical minerals that are essential for advanced manufacturing.
Rare earth elements are key inputs in a wide range of high-value products, including electric vehicle magnets, semiconductor-related materials and advanced ceramics. The restrictions have disrupted a supply chain in which Japanese companies previously imported rare earths from China, processed them into specialised materials and components, and then supplied those products to Chinese manufacturers.
With access to Japanese suppliers under pressure, Chinese companies have increasingly turned to domestic producers. Industry analysts say local manufacturers are using the situation to accelerate technological development and compete more effectively in global markets.
The shift has been particularly visible in the processing of yttrium, a rare earth element added to China’s export control list last year. China accounts for more than 90 per cent of global production capacity for yttrium oxide, a material used to stabilise zirconia, which is required in products including electronics and industrial ceramics.
Rao Xinwei, a Shanghai-based analyst at commodities data group Mysteel, said China’s zirconia industry had traditionally been stronger in mid- and low-end markets but faced difficulties competing with French and Japanese companies in high-end production.
Japanese manufacturers including Tosoh, Daiichi Kigenso Kagaku and Shin-Etsu have been global leaders in producing and refining high-quality zirconia and yttrium-based materials. Rao said China’s export controls on yttrium oxide had created a “historic opportunity” for Chinese companies to improve their capabilities and expand their share of international markets.
Investor confidence in the sector has increased, with shares of six Chinese companies producing zirconia- and yttrium-based products rising between 74 per cent and 312 per cent since the beginning of the year.
China’s export restrictions have also contributed to a major price difference between domestic and overseas markets. According to Chinese commodities data provider Baiinfo, yttrium oxide was priced at $7.88 per kilogram in China, compared with $1,175 per kilogram in Europe. Other rare earth compounds have also shown significant price differences, although smaller than the gap for yttrium oxide.
A Japanese industry source said yttrium had created the most serious supply chain pressure, although Japan was continuing to manage the situation. The source said zirconia supplies had not become a major issue.
Chinese dental materials and equipment producer Aidite said it had received notice from Japanese supplier Tosoh that deliveries of zirconia powder would be suspended at a later date. Aidite did not disclose when the suspension would begin, while Tosoh denied that deliveries to Aidite had been halted.
Industry sources said most of Tosoh’s zirconia supplies for dental applications are sent to markets in the United States and Europe. Any disruption to rare earth supplies could affect companies outside Asia through shortages or increased dependence on Chinese suppliers.
Japan is not the only country affected by China’s rare earth controls. Beijing has also used export restrictions in response to trade measures from the United States, including President Donald Trump’s broad “liberation day” tariffs last year. Analysts said the measures have shifted some leverage in US-China economic relations towards Beijing.
Although the United States has increased efforts to build its own rare earth supply chain, analysts said reducing China’s dominance would likely take years or decades. They expect Chinese companies to continue using export controls as an opportunity to expand into higher-value industrial segments.
Cory Combs, associate director at Beijing-based consultancy Trivium China, said Chinese producers of magnets and other rare earth products had been catching up with Japanese competitors for several years. He said restrictions that reduce Japanese rare earth inventories would increase costs for Japanese producers while benefiting Chinese rivals.
