Geopolitical Tensions Fuel Rare Earths Rally, Spotlighting Lynas

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Shares of Australian rare earths producer Lynas Rare Earths surged by double digits yesterday, propelled by China's imposition of an export ban on dual-use goods to Japan. This development underscores the growing strategic value of Lynas as the largest supplier of these critical materials outside of China, amid escalating geopolitical friction between Beijing and Tokyo that is accelerating the search for alternative supply chains.

The Lynas stock price advanced 15.1% to A$15.06. This rally represents a significant rebound from the four-month low of A$12.15 recorded on January 2 and marks a more than doubling of the share price over a twelve-month period. The company's unique position is cemented by a long-standing offtake agreement with Japanese trading house Sojitz, making it a primary alternative supplier for Japan should Chinese exports face disruption.

China's Export Ban and Potential Escalation

On Monday, Beijing announced an immediate prohibition on all dual-use exports to Japan, affecting approximately 800 product categories including chemicals, electronics, sensors, and marine equipment. This move is a direct response to comments from Japanese Prime Minister Sanae Takaichi concerning Taiwan, in which she suggested a Chinese military attack could trigger Japan's collective self-defense measures.

According to the state-run China Daily, authorities are also considering expanding export restrictions to include medium and heavy rare earth elements. These materials are crucial for manufacturing electric vehicle motors, missile guidance and targeting systems, and components for fighter jets. Japan sources about 60% of its total rare earth imports from China, with a near-total dependence on Chinese supplies for the heavy rare earths used in magnets for electric and hybrid vehicles.

Japan's Chief Cabinet Secretary, Minoru Kihara, labeled the export ban "absolutely unacceptable and deeply regrettable," with the foreign ministry lodging a formal protest with China's deputy mission chief, Shi Yong.

Economic Impact Assessments and Sector-Wide Effects

Economist Takahide Kiuchi of the Nomura Research Institute estimates that a three-month halt in rare earth exports could cost Japanese companies around ¥660 billion (approximately US$4.2 billion) and reduce the nation's GDP by 0.11 percentage points. A full-year ban could subtract 0.43 percentage points from growth.

The broader rare earths sector experienced positive momentum. Iluka Resources gained 3.43%, Brazilian Rare Earths rose 5.84%, Arafura advanced 5.17%, and Meteoric Resources climbed 8.11%. In contrast, Japan's benchmark Nikkei 225 index fell about 1%, with defense contractors Kawasaki Heavy and Mitsubishi Heavy each down roughly 2%. Automaker Subaru stated it was closely monitoring the situation.

Lynas Operations and Analyst Sentiment

Operationally, Lynas continues to expand its integrated capabilities. A heavy rare earths separation facility is under construction in Malaysia, slated to commence production in 2026, processing material from the company's Mt Weld mine in Western Australia.

The company had previously reported a quarterly record NdPr (neodymium-praseodymium) production of 2,080 tonnes in July 2025. Quarterly revenue jumped 38% sequentially to A$170.2 million.

In November 2025, Goldman Sachs upgraded Lynas from "Hold" to "Strong Buy," highlighting the company's pivotal role in diversifying Western supply chains for critical minerals. Lynas currently commands a market capitalization of approximately A$13.05 billion.

Upcoming Events and Historical Context

Lynas is scheduled to release its quarterly results for the period ending December 31, 2025, on Wednesday, January 21. Managing Director Amanda Lacaze will host a webcast presentation for analysts and shareholders at midday Sydney time on the same day.

The current Sino-Japanese tension evokes memories of a 2010 territorial dispute, when Beijing halted rare earth exports to Japan for two months. Experts at Teneo suggest that Beijing's deliberately vague measures likely serve as a pressure tactic, aiming to extract political concessions from Tokyo while reinforcing China's dominance in critical raw materials.