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Bill Bishop wrote today:
sinocism.com/i/14671662… - Bloomberg reports that the Biden Administration has failed to persuade Japan and the Netherlands to voluntarily tighten controls on exports of semiconductor equipment PRC and to stop servicing some equipment already sold into the PRC, and so is now considering imposing the foreign direct product rule (FDPR). Netherlands’ ASML and several Japanese firms stand to lose lots of revenue from tightening restrictions, and I am hearing as well that the Japanese government has been resisting more restrictions in part because of concerns that a PRC response could target rare earths, critical minerals and graphite exports that Japanese carmakers rely on.
Japan is the only country outside China with a rare earths to permanent magnet supply chain. Japan’s market share in rare earth permanent magnets has shrunk to 8%, while China is expanding rare earth and rare earth permanent magnet capacities that will cover forecast 2030 WORLD DEMAND already by early 2026.
Every car, whether electric, hybrid or combustion engine has a lot of rare earth permanent magnets inside, be it steering support, ABS, fuel injection pumps, motor, and so on. But also everything in your household with an electric motor, electric toothbrush, shaver, washing machine, dishwasher, mixer, aircon, stereo, mobile phone, etc. is likely powered by a rare earth permanent magnet.
Japan regularly accounts for 40-50% of China’s entire rare earth export value.
Prices of rare earth have fallen along with the prices for battery materials, as naive demand forecasts based on confidence that zero carbon policies of western governments would be implemented 1:1 on schedule. This is not happening and capacity build-ups based on naive demand forecasts now cause a global glut in all things rare earth and battery materials.
Rare earth and rare earth permanent magnets are not commodities, these are hi-tech engineered products. At this point China is irreplaceable in relevant international supply chains and will remain so for at least another decade (while a few good efforts are made, in spite of many snake oil salesmen’s assurances to the contrary, western replacement efforts are not remotely at the scale they would need to be and do not close gaps the value chain, apart from absent know-how and skilled experts).
As you can see, a rare earth boycott would have a serious impact on Japan’s industry. But at the same time it would lay ruin to China’s already loss-making rare earth industry.
