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Scenario Analysis: China’s Latest Magnet Restrictions (Q4-2025 → 2027)

Snapshot of what’s changed

  • China tightened rare-earth/magnet export controls in 2025 (license scrutiny, tracking, selective denials), with shipments collapsing in May, then partially rebounding in June as some licenses were issued; fresh tightening and longer approvals reported again in October; rare-earth exports fell sharply in September.

  • EU/G7 coordination talks are now in motion; Beijing frames the curbs as legitimate and tied to broader trade tensions.

Scenario 1 — “Managed Tightening” (BASE CASE: 40–50%)

What happens
Licenses keep flowing but slower and less predictable; defense/dual-use uses face stricter review. Tracking stays; paperwork expands; occasional pauses at customs.

What to watch (leading indicators)

  • Reuters notes of changing license processing times; sporadic approvals to big OEM supply chains; month-to-month export whiplash without full stops.

Operational impact (typical)

  • Lead times: +3–6 weeks variability vs. 2023 norms.

  • Cost: +5–15% on NdFeB finished parts/alloys from buffer stocks & admin friction.

  • Planning: intermittent expedites; higher WIP/finished-goods inventories.

Moves to make now

  • Lock framework POs with flexible delivery windows; add license/ETD clauses.

  • Dual-qualify two China sources + one non-China assembly partner (VN/IN/JP/KR) to finish and ship.

  • Create a “license readiness pack” (end-use statements, HS codes, drawings, application BOM) to hand suppliers—cuts resubmission cycles.

Scenario 2 — “Targeted Squeeze” on Dual-Use/Defense (PROBABLE: 25–30%)

What happens
License denials or slow-rolls for magnets tied to defense/aerospace/advanced semis; commercial consumer-grade magnets mostly pass, but with noise.

What to watch

  • Reports of denials or long holds for motors/assemblies with defense end-use; temporary “carve-out” approvals to top auto OEMs.

  • EU/U.S. seek joint mitigation; more public guidance on end-use declarations.

Operational impact

  • Program risk: ITAR/NDA programs slip 1–2 quarters.

  • Mix shift: higher prices on high-coercivity NdFeB/SmCo grades; commodity grades less affected.

  • Engineering churn: re-magnetization specs, coating changes, or rotor redesigns to stay within permitted categories.

Moves to make now

  • Segregate BOMs by end-use; pre-document “commercial only” declarations.

  • Stand up an alternate spec tree (e.g., NdFeB grade pairs, SmCo fallbacks, or magnet-efficient rotor topologies).

  • Begin pilot lots outside China for defense SKUs to validate PPAP/FAI.

Scenario 3 — “Broad Clampdown / License Freeze” (STRETCHED BUT PLAUSIBLE: 15–20%)

What happens
Political shock (tariff spike, sanction step) triggers a de-facto freeze on many magnet exports for multiple months.

What to watch

  • Sharp month(s) with exports falling to 2020-style lows; headlines on “harder to get licenses,” and policy pieces warning China is leveraging metals once.

Operational impact

  • Lead times: +8–20 weeks; spot stockouts.

  • Prices: step-up across NdFeB/SmCo; secondary markets spike.

  • Demand disruption: EV and e-bike lines adjust mix; aerospace delays.

Moves to make now

  • Build 90–120 days of safety stock for A-movers; consignment or bonded inventory near customers.

  • Contract non-China finishing/assembly (Vietnam/India/Japan/Korea/EU/US) and non-China alloy sources where feasible; pre-qualify coatings/plating lines.

  • Negotiate force-majeure language & indexed pricing to rare-earth baskets.

Scenario 4 — “De-Escalation / Managed Rollback” (LOW–MED: 10–15%)

What happens
Diplomatic thaw leads to license throughput improving; categories clarified; tracking remains but bottlenecks ease.

What to watch

  • Sustained m/m recovery in magnet exports (as seen in June after temporary licenses), plus clearer guidance on HS codes.

Operational impact

  • Lead times normalize to +1–2 weeks above 2023 baselines; pricing stabilizes with modest premiums.

Moves to make now

  • Keep dual-sourcing and design-for-flex; shift from inventory buffers to contract buffers (allocations, VMI).

  • Use the window to qualify alternates and lock multi-year supply for strategic grades.

Cross-Scenario Playbook (do these regardless)

  1. Supply diversification & buffers

  • 60/30/10 sourcing split target (China/Allied Asia/Local or EU/US) for finished magnets over 12–18 months.

  • Stage buffer stock at a neutral 3PL hub (e.g., SG/HK/NL) with relabeling capability.

  1. Design & materials flexibility

  • Maintain paired grade options (e.g., N35/N38SH → N42H) with pre-approved BH curves and tolerance envelopes.

  • Develop low-RE or ferrite variants for non-torque-critical SKUs; keep SmCo as thermal/defense fallback.

  1. Operational readiness

  • Create a License Assist Pack for suppliers (end-use letters, HS codes, drawings, RoHS/REACH, coatings).

  • Implement shipment watchboards (license status, ETD/ETA, port, HS code, batch/lot).

  • Add scenario clauses to customer contracts: indexed pricing, substitution rights, and requalification SLAs.

  1. Communications

  • Proactive customer notes when export data moves (e.g., Sept drop, Oct tightening).

Timeline & Triggers

  • 0–6 months (Q4-2025 → Q1-2026): Highest policy volatility; prioritize stock builds, alt-site pilots, and contract clauses.

  • 6–18 months: Either settles into Scenario 1–2 or escalates toward 3; EU/G7 mitigation programs mature.

  • 18–36 months: New non-China processing/magnet capacity begins to land if escalation continues; bifurcated supply chains likely.

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