China increases scrutiny of rare earth magnets with new tracking system

(Corrects paragraph 5 to say "implementation" instead of "mention")

BEIJING (Reuters) -China has introduced a tracking system for its rare earth magnet sector, three sources said, as its export restrictions on them begin to cut off customers around the world.

The national tracking system, which went into effect last week, requires producers to submit extra information online including trading volumes and client names, said two sources familiar with the matter and another briefed by those involved.

The world's largest rare earth magnet supplier and exporter, China in early April imposed export restrictions on seven medium to heavy rare earth elements and several magnets, requiring exporters to obtain licences.

Delays getting approvals have upended supply chains for automakers, semiconductor companies and others, with global automakers already beginning to stop some production lines as reserves run out.

Beijing unveiled high-level plans to establish an information tracing system for rare earth products last June, but there had been no implementation until last week, according to the source briefed on the matter.

The added level of scrutiny suggests that China's export controls on rare earths and the associated magnets - where it has a near-monopoly on production - could become a permanent feature for the products.

There have been hopes in the U.S. and elsewhere that this would be removed as part of a trade truce agreed in Geneva last month.

In previous cases where China has imposed export curbs on metals, exports have tended to slowly rebound after the imposition of restrictions as exporters apply and receive licences.

"Our current hypothesis is that China would continue its export control mechanism on rare earths, as its an ace card for China to hold," said Tim Zhang, founder of Singapore-based Edge Research.

Beijing's long-term target is to track the whole rare earth production chain, not just magnets, strengthen its control over the sector, and crackdown on smuggling, illegal mining and tax evasion, according to a fourth source who was also briefed on the matter.

(Reporting by Beijing newsroom and Lewis Jackson, Hyunjoo Jin in Seoul; editing by Veronica Brown, Jason Neely)