Home Finance Global Competition over China-Dominated Market for Rare-Earth Elements Heats Up

Global Competition over China-Dominated Market for Rare-Earth Elements Heats Up

by internationalbanker

By Cary Springfield, International Banker


China controls most of the global market in these minerals,” US President Joe Biden declared in late February, referring to the increasingly important rare-earth elements (REE) and lithium industries. “We can’t build a future that’s made in America if we, ourselves, are dependent on China for the materials that power the products of today and tomorrow…. And this is not anti-China or anti-anything else; it’s pro-American.” It’s no secret that such combative sentiment against China’s economic rise has become increasingly commonplace within Western political rhetoric. And with rare-earth elements proving to be critical components of ever greater numbers of consumer applications, control of the global industry for these metallic elements is now, unequivocally, a key arena for escalating competition among the big powers.  

With famously difficult names to pronounce, there are 17 known rare-earth elements found in the world today: yttrium (Y) and scandium (Sc), as well as 15 lanthanide elements (cerium [Ce], dysprosium [Dy], erbium [Er], europium [Eu], gadolinium [Gd], holmium [Ho], lanthanum [La], lutetium [Lu], neodymium [Nd], praseodymium [Pr], promethium [Pm], samarium [Sm], terbium [Tb], thulium [Tm] and ytterbium [Yb]). And unlike what their names imply, they are far from being rare, with substantial reserves found within the Earth’s surface and dispersed across the world. That said, finding abundant rare-earth elements in any single location is rare due to their typically low concentrations observed within most ores. And when they are found, moreover, they are invariably mixed, which often prevents their mining, processing and separation into individual elements from being economically viable.

Nonetheless, these elements can be processed for use in a vastly diverse array of valuable products, including smartphones, electric vehicles (EVs), solar panels and other green technologies, as well as flat-screen televisions and several defence and military applications, such as lasers, guidance systems, and radar and sonar systems. Such highly sought-after use cases are tied to industries worth trillions of dollars, especially permanent magnets for EVs and wind turbines that require neodymium, praseodymium, dysprosium and terbium, therefore putting rare-earth elements in hot demand from all corners of the planet.

The decidedly uneven geographical distribution of these increasingly vital elements, however, means that they are the subject of intensifying competition. A study by the U.S. Geological Survey (USGS) found that, at 44 million tonnes (as of 2021), China has more than one-third of the world’s global reserves of rare-earth elements. It also produces more than 60 percent of the world’s total mined output of REEs, easily dwarfing its closest rival—the United States, with just 15 percent of the global share. China also accounts for 85 percent of rare-earth processing capacity and 90 percent of the manufacturing capacity for high-strength rare-earth permanent magnets. Moreover, the US imports around three-quarters of its rare-earth elements from China, as USGS figures also revealed, while European Commission (EC) numbers show that the European Union (EU) acquires 98 percent of such minerals from the Asian superpower.

Perhaps most significant in recent years, from China’s perspective, meanwhile, was the creation of China Rare Earth Group through the merger of three leading state-owned enterprises within the domestic rare-earth space. The new mega-conglomerate is estimated to account for nearly two-thirds of the country’s heavy rare-earth supplies and around one-quarter of global mineral-bearing rare-earth elements. And along with another similarly massive rare-earth conglomerate within the country, the government hopes these enormous enterprises will further boost the country’s overall cost competitiveness, production efficiency and control over international market prices and the world’s supply of rare-earth elements, thus extending China’s dominant global position across virtually every stage of the rare-earth production process. It also provides China with opportunities to raise the industry’s environmental profile and standardise its mining practices.

But at a time of distinctly heightened geopolitical tensions throughout much of the world, coupled with the COVID-19 pandemic highlighting the severe fragility of global supply chains, many Western countries are seeking ways to reduce their reliance on China for acquiring purified rare-earth elements. “Dependency on China for rare earths is viewed with alarm,” Jay Truesdale, chief executive officer (CEO) of the risk advisory firm Veracity Worldwide, said in February. “Given that Beijing has the means to severely restrict access to these minerals, in the event of a geopolitical crisis, it could choose to use its market dominance to cripple non-Chinese manufacturers in such sectors as electronics, automotive manufacturing, aerospace, and renewable energy.”

Indeed, such restrictions could be imminent. Nikkei Asia reported on April 6 that China “is considering prohibiting exports of certain rare-earth magnet technology in a move that would counter the US advantage in the high-tech arena”. Officials are reportedly planning amendments to a technology export-restriction list that was last updated in 2020.

Such fears are prompting Western governments led by the US, the EU, Australia and Japan to look at investing more in their respective domestic rare-earth production facilities. “The adoption of EVs alone will require an additional 200,000 tonnes of rare earths in the next ten years,” Luisa Moreno, president of Canadian rare-earth mining firm Defense Metals, told the mining industry publication Mining Technology in April 2022. “There is need for more mine production, and we need to build rare earths supply chains outside China, starting with refinery capacity. The West also needs the capacity to make rare earths metals, rare earths magnets, and other products and technologies.”

But could times be changing? A series of key events of late could see Western consumers’ reliance on China’s rare-earth supplies gradually diminish. Most recently, for instance, Tesla confirmed in early March that the forthcoming iteration of its permanent magnet EV motor would not contain a single rare-earth element. Colin Campbell, vice president of powertrain engineering at the EV company, noted that “as the world transitions to clean energy, demand for rare earths is really increasing dramatically, and not only is it going to be a little hard to meet that demand but mining that rare earth, it has environmental and health risks”.

The announcement immediately sent shares of Chinese rare-earth mining firms into a tailspin, although just how substantial a dent it will make in global rare-earth demand remains to be seen. Data from mineral-advisory firm Adamas Intelligence last year showed that passenger EV traction motors were responsible for 12 percent of global neodymium magnet (NdFeB) consumption; of this amount, Tesla was responsible for 15-20 percent, thus meaning its overall contribution to global NdFeB demand (excluding micromotors, sensors and speakers) was just 2-3 percent. “The global NdFeB market stands to lose a mere 2% to 3% of demand in the near-term, and maximum 3% to 4% over the long-term assuming Tesla maintains its EV market leadership.”

Nonetheless, Tesla’s move represents just part of a seemingly expanding trend by the West to diversify away from China’s rare-earth dominance, which the US and its allies consider a potential national security risk. “Western allies are the main driving force in decoupling from China, rather than China looking to detach from the West,” David Merriman, research director in rare earths at consultancy Wood Mackenzie (WoodMac), told the South China Morning Post (SCMP) in July 2022. “The West remains a key market for Chinese rare earth products, with many economic benefits to China maintaining this relationship, while the Western perspective seeks to reduce supply-dependency, particularly amid worsening geopolitical relations.”

January also saw Swedish mining company LKAB (Luossavaara-Kiirunavaara Aktiebolag) announce that it had discovered Europe’s largest rare-earth oxide deposit in the north of the country, thought to house more than one million tonnes. “This is good news, not only for LKAB, the region and the Swedish people, but also for Europe and the climate,” said Jan Moström, president and group CEO of LKAB. “This is the largest known deposit of rare-earth elements in our part of the world, and it could become a significant building block for producing the critical raw materials that are absolutely crucial to enable the green transition. We face a supply problem. Without mines, there can be no electric vehicles.”

With no mining of rare-earth elements currently being carried out in Europe, such finds could prove vital in boosting global production capacity outside of China. “Electrification, the EU’s self-sufficiency and independence from Russia and China will begin in the mine,” Ebba Busch, Sweden’s minister for energy, business and industry, added. “We need to strengthen industrial value chains in Europe and create real opportunities for the electrification of our societies. Politics must give the industry the conditions to switch to green and fossil-free production. Here, the Swedish mining industry ha[s] a lot to offer. The need for minerals to carry out the transition is great.”

But while such discoveries may lead to increased production capacity coming online further down the line, the West cannot hide from the fact that China’s overwhelming global dominance in rare-earth elements will remain in place for years to come.  


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