Geopolitical tensions are transforming the rare earth market

The rare earth market is undergoing a shift in geographic supply chain concentration, driven by Western efforts to reduce dependence on China due to growing demand, a focus on national security and the materials’ strategic importance. Over the past decade, the annual supply of rare earths has tripled, setting global production records almost every year – from 142,000 tonnes in 2013 to 359,000 tonnes of rare earth oxide equivalent mined last year.

The rare earth market is in a state of flux, at the intersection of technological innovation and geopolitical tension. China’s long-standing dominance remains strong but is gradually waning, with its share of global production falling from 98% in 2010 to 78% in 2015 and down to 67% last year as Australian and US producers, backed by substantial government support , they grew. up the activity.

China is still dominant, although its market share is declining

Despite China’s declining market share in the upstream mining sector, its absolute supply output is still growing. More importantly, its control over complex mid-to-downstream processing and manufacturing stages is proving harder to shake. Although geologically relatively abundant, rare earths are considered rare because extracting and separating the ores into the individual oxides needed for use in production is difficult. This makes economically viable deposits rare. The consolidated, state-controlled Chinese market is at the forefront of demanding industrial and technological operations related to rare earth processing. Last December, China imposed export controls on technologies for rare earth extraction, separation, refining and magnet production, potentially slowing new developments outside the country. Continued financial support from Western governments will be needed to loosen China’s mature grip and increase its market share in the rare earth processing value chain.

Regional policies to stimulate the domestic supply of rare earths

The US promotes the development of its domestic rare earth value chain by funding research and funding projects through the Inflation Reduction Act. Australia has long supported rare earth projects through tax incentives, meanwhile Europe aims to create supply through domestic targets for supply quotas through its Critical Raw Materials Act. In May this year, both the US and Australia announced policies to combat Chinese competition. Australia announced expanded incentives in the 2024-25 budget plan through a 10% production tax credit and pre-feasibility project funding for all essential minerals, including rare earths. At the same time, the Biden administration in the US imposed a 25% import tariff on rare earth magnets from China, effective from 2026.

There are several countries with abundant rare earth reserves, and with global reserves of around 115 million tonnes, the world has enough to last over 300 years based on last year’s production volumes. With more reserves likely to be discovered, lack of resources is not a realistic concern.

Although small in volume compared to the more than 3 billion tons of metals mined annually, the rare earth elements are crucial to society, and their unique properties have proven extremely difficult to replace. Demand for the 17 shiny silvery-white metals has increased recently due to their pivotal role in dynamic sectors related to the energy transition, as well as high-tech equipment in defense, artificial intelligence and consumer electronics. Permanent magnets, required for any device related to electric motion, such as wind turbines and electric vehicle (EV) motors, are the largest application for rare earths, making the magnetic rare earths neodymium, praseodymium, dysprosium and samarium among the most in demand and highly prized rare earths. We expect magnetic rare earths to remain mainstream, driven by technological advances and the electrification of society.

The race between China and the West will continue

A dramatic increase in supply has outstripped demand over the past few years, resulting in an oversupply of rare earth products. This has created an erratic low-price environment where many producers are operating at a loss. Rare earth prices are notoriously volatile and difficult to predict, partly because of their high susceptibility to geopolitical risk and ongoing global trade disputes. A volatile price environment is challenging the initial initiatives launched by an expanding supplier landscape that seeks to capitalize on the emerging globalized supply chain.

Rare earths have become a key battleground in the ongoing technological and economic rivalry between China and the West as the race continues for control to ensure its reliable supply.

By Rystad Energy

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