Chinese export control regulations that come into force on Tuesday have sparked a surge in prices of rare-earth elements, vital for a wide range of high-tech, high-performance products, from hybrid-car batteries to missile-guidance systems, and the source of longstanding trade friction with leading manufacturing nations for which China is by far the biggest supplier.

Last week alone, the three main varieties of raw materials used in rare-earth magnets rose to 8-year, 3-year, and 5-month highs, respectively, as the world’s largest rare-earth exporter readied to implement the Export Control Law on Dec. 1.

Beijing in October passed the Export Control Law, which enables authorities to take action against any country or region that they think abuses export control measures and endangers China’s national security and interests. Penalties include revoking export licences or fines of 5 million yuan (US$760,000).

China exported 480 tons of rare-earth magnets to the United States in September, the highest monthly total since 2016, customs data show.

The stranglehold China has on global supplies, coupled with the practice of rare-earth magnet manufacturers holding inventory for as little as one month’s supply, means the new law will likely see rapid drawdowns in stockpiles and lead to rising prices, analysts said.

A previous attempt by China to restrict exports aroused suspicion that Beijing was using its rare-earths dominance as a political weapon. The U.S., EU and Japan, among other countries, also argued that the restrictions were a violation of World Trade Organization trade regulations. In 2014, the WTO ruled against China.

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