China Mining Monthly: Strategic Mineral Controls Accelerate, Lithium Supply-Demand Rebalancing and Rare Earth Countermeasures Diverge

Bottom Line

In June, China's mining sector entered a period of intensive policy implementation. The new "Regulations for the Implementation of the Mineral Resources Law" officially took effect, imposing strict full-chain controls on 36 strategic minerals. Concurrently, rare earth export controls shifted from comprehensive restrictions to targeted licensing, and countermeasures were initiated against US rare earth companies through export controls, strengthening supply chain dominance. However, the lithium market faces supply-demand rebalancing pressure due to expectations of the resumption of operations at the Jianxiawo lithium mine and trial production of new capacity. Lithium prices rose initially but then fell, leading to clear divergence within the sector. Investors should overweight leading companies with strong strategic mineral reserves and robust compliance capabilities (such as Northern Rare Earth and targets related to Chinalco), underweight pure lithium mining exposure, and monitor long-term opportunities from the intelligent transformation brought by Hong Kong IPOs of autonomous mining technology companies.

Month in Review

China's mining market in June was dominated by a policy-driven narrative, with two major legal frameworks reshaping industry order during the month. At the beginning of the month, the "Regulations for the Implementation of the Mineral Resources Law" were officially announced to take effect on June 15, clarifying the full-chain management rules for mining rights. Meanwhile, a major safety accident at the Liushenyu Coal Mine in Shanxi exposed falsified safety records and regulatory loopholes, prompting a nationwide escalation of safety supervision. Mid-month, the regulations were implemented as scheduled, designating rare earths, lithium, tungsten, cobalt, gallium, and germanium as strategic minerals, imposing strict controls over the entire process of mining, processing, and export. This is long-term positive for compliant leaders but suppresses expectations for small and medium-sized mining enterprises in the short term. Concurrently, the State Council explicitly opposed the political performance metric of "counties without mines," requiring enhanced exploration for strategic minerals. This policy correction boosted expectations for exploration companies.

In the latter half of the month, market focus shifted to international gamesmanship and supply-demand rebalancing. In the rare earth sector, China announced a ban on 10 US companies purchasing dual-use items, including the two largest US rare earth companies, further consolidating China's absolute control over medium and heavy rare earths. Price support for rare earths strengthened, and sector sentiment turned significantly bullish. The lithium market faced a turning point: earlier, lithium prices had rebounded to 175,000 RMB/tonne on demand release. However, the removal of a key land obstacle for the resumption of operations at the Jianxiawo lithium mine and the commencement of trial production at the Dangba spodumene mine expansion triggered expectations of a supply surplus, causing the main contract for lithium carbonate futures to plummet 6.58% in a single week. During the month, domestic lithium production capacity was officially released (Dazhong Mining's 40,000 tonnes/year lithium carbonate production line was ignited), while overseas policy risks (Malaysia's crackdown on illegal mining, Zimbabwe's delayed export ban) increased supply chain uncertainty. Overall, mining sector profits in June grew 33.5% year-on-year, leading the industrial sector, but profits were concentrated at the resource end, exacerbating structural divergence.

Trajectory Analysis

Month-over-Month Change: Worse compared to the implied previous month (May was generally bullish). Although the rare earth sector received strong policy support, the lithium sector came under pressure due to weakened supply expectations. Overall market sentiment shifted from bullish in May to divergent and cautious in June.

Key Developments

1. "Regulations for the Implementation of the Mineral Resources Law" took effect on June 15, imposing strict full-chain controls on 36 strategic minerals (Week 1 & Week 3) — The implementation regulations, approved by the State Council executive meeting, officially came into force, clarifying the full-chain management of mining rights and designating rare earths, lithium, tungsten, cobalt, gallium, and germanium as strategic minerals, with strict controls on mining, processing, and export. Portfolio implication: Positive for state-owned enterprises and large private companies with strategic mineral mining rights and strong compliance capabilities (e.g., Northern Rare Earth, targets related to Chinalco); approval thresholds for small and medium-sized mining enterprises are rising, suggesting reducing related exposure.

2. Explosion at Shanxi Liushenyu Coal Mine kills 82, exposing falsified safety records and regulatory loopholes (Week 1) — In the May 22 accident, the mine had long maintained two sets of blueprints and monitoring systems to evade inspections. The investigation scope has expanded to include local governments and industry regulatory departments. Portfolio implication: Short-term nationwide coal mine safety supervision has significantly intensified. Central state-owned enterprises with high safety standards (e.g., China Coal Energy) benefit relatively, while private small and medium-sized coal mines face suspension and rectification risks. It is recommended to avoid debt exposure of unlisted coal companies in the Shanxi region.

3. Rare earth export controls shift to targeted licensing; State Council strengthens strategic mineral exploration (Week 2) — China officially issued the first batch of simplified rare earth export licenses, marking a transition from comprehensive controls to targeted regulation. Concurrently, the State Council required strengthening the security of strategic mineral supply, opposing the political performance metric of "counties without mines." Portfolio implication: Policy uncertainty for the rare earth sector has decreased. Leading mining companies and magnet exporters benefit clearly. It is recommended to overweight medium and heavy rare earth targets with overseas mine acquisition capabilities. Domestic exploration companies and mine service providers are also boosted by the policy.

4. Lithium prices rise then fall: Lithium carbonate futures plummet 6.58% after returning to 175,000 RMB/tonne due to resumption expectations (Week 2 & Week 4) — On June 12, lithium carbonate futures closed at 175,300 RMB/tonne. However, on June 18, the publication of the land pre-review opinion for the Jianxiawo lithium mine removed obstacles for resumption, causing the main contract to plummet 6.58% in a single week. Portfolio implication: Lithium resources are in a short-term tight balance, but expectations of supply increases are rising. Profit elasticity for high-cost lithium salt companies is shrinking. It is recommended to reduce holdings in pure lithium mining targets and shift towards integrated processing or technology-barrier companies.

5. Dazhong Mining ignites 40,000 tonnes/year lithium carbonate production line at its Hunan lithium mine (Week 3) — On June 18, 2026, Dazhong Mining held an ignition ceremony for the production line at its Jijiaoshan lithium mine in Linwu, Hunan, marking the official entry of this lithium resource project into the capacity release phase. Portfolio implication: The acceleration of domestic lithium carbonate supply increments may suppress lithium prices. Monitor whether companies like Tianqi Lithium and Salt Lake Industry, which have already benefited from the price rebound, face competitive pressure.

6. China implements export control countermeasures against US rare earth companies (Week 4) — On June 22, China announced a ban on 10 US companies purchasing dual-use items, including the two largest US rare earth companies. Portfolio implication: This move further consolidates China's control over the medium and heavy rare earth supply chain, strengthening price support for rare earths. Investors can increase holdings in leading domestic rare earth mining and processing companies, while being wary of short-term volatility from potential US countermeasures.

7. China's mining sector profit for Jan-May grows 33.5% YoY, leading the industrial sector (Week 4) — Data from the National Bureau of Statistics on June 27 showed that from January to May, the total profit of mining enterprises above designated size was 479.52 billion RMB, a year-on-year increase of 33.5%, significantly higher than the 18.8% growth rate for the overall industrial sector above designated size. Portfolio implication: The mining sector's overall profitability is strong, but profits are concentrated in the upstream resource end. It is recommended to focus on sub-sectors with high profit elasticity, such as copper, gold, and rare metals, while being wary of the risk of a marginal slowdown in profit growth.

Risk Evolution

Risks That Materialized: Lithium supply surplus expectations transitioned from low risk to realized risk. The removal of obstacles for the Jianxiawo mine resumption and new capacity trial production directly suppressed lithium prices. Overseas illegal mining risks escalated in Malaysia, with several Chinese citizens arrested. The rare earth geopolitical game was proactively escalated by China through countermeasures. New Emerging Risks: Valuation volatility risk for autonomous mining technology companies listing in Hong Kong (two companies passed hearings in Week 4). Uncertainty remains regarding the progress of local processing capacity construction in Zimbabwe after the lithium export ban was postponed (only Huayou Cobalt has the conditions).

Sector Pulse (Monthly)

Outlook: Next Month

Key catalysts to watch:

• Official resumption announcement and actual production pace of the Jianxiawo lithium mine, which will further impact the lithium carbonate supply-demand balance and price direction.
• Potential retaliatory measures from the US following the rare earth export control countermeasures, and global supply chain adjustments.
• Actual compliance costs and production impact on small and medium-sized mining enterprises after the implementation details of the "Regulations for the Implementation of the Mineral Resources Law" are released.
• The extent of phased support for thermal coal prices from summer energy security policies, and the recovery progress of suspended/rectified coal mines in Shanxi.

Positioning recommendation: Next month, maintain an overweight position in rare earths and strategic mineral leaders (Northern Rare Earth, Xiamen Tungsten, targets related to Chinalco), and an underweight position in pure lithium mining targets (such as Tianqi Lithium, Dazhong Mining). Shift towards integrated lithium processing or technology-barrier companies (such as Salt Lake Industry). For the mining intelligent transformation theme, monitor the IPO pricing opportunities of EACON Mining and Yikong Zhijia; consider participating in subscriptions if valuations are reasonable. The overall portfolio needs to hedge against geopolitical fluctuations and the risk of further lithium price corrections. It is recommended to increase allocations to sub-sectors like gold and copper, which benefit from global inflation expectations.