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April 26, 2022updated 09 May 2022 11:18am

China’s stranglehold of the rare earths supply chain will last another decade

Angola, Australia and the US are all poised to ramp up the production of rare earth elements during the next few years, but China is set to continue enjoying an 80% share of the global refining of the vital metals.

By Jason Mitchell

Western economies are set to remain heavily dependent on China for the refining of rare earth elements (REEs) for the next decade, but their reliance on it for the mining of the metals is expected to fall as new mines become operational in other parts of the world.

There are 17 REEs: yttrium and scandium and the 15 lanthanide elements (cerium, dysprosium, erbium, europium, gadolinium, holmium, lanthanum, lutetium, neodymium, praseodymium, promethium, samarium, terbium, thulium and ytterbium). The metals – which have exceptional magnetic and conductive properties – are critical components of more than 200 products across a wide range of applications, including smartphones, computer hard drives, hybrid and electric vehicles (EVs), wind turbines, solar panels and flat-screen monitors and televisions. Significant defence applications include electronic displays, guidance systems, lasers, and radar and sonar systems.

One of the most important REEs is neodymium, and an alloy of neodymium, iron and boron (known as NdFeB) creates the strongest permanent magnet yet discovered. These magnets also contain some praseodymium, creating the alloy PrNd. It is vital to the world’s ‘clean energy revolution’ and the objective of carbon neutrality by 2050. The magnets are used in EV drive trains, wind turbines and energy-efficient applications. In fact, up to 600kg of REEs are required to operate just one wind turbine. Approximately one kilogram is needed for every EV battery.

NdFeB magnets are also used, sometimes in small quantities, in smartphones, microphones, loudspeakers, dentures, door catches and MRI scanners. They permeate all aspects of people’s lives, although many do not realise.

Demand for rare earths rising fast

The annual demand for REEs doubled to 125,000 metric tonnes (t) in the 15 years to 2021 and is projected to reach 315,000t in 2030. Adamas Intelligence forecasts that the value of global magnet rare earth oxide consumption will triple from $15.1bn in 2022 to $46.2bn by 2035. Rare earth oxides are essential to many industries worth trillions of dollars.

Following a Covid 19-related lull in 2020, the global consumption of NdFeB magnets leapt by 18.1% in 2021, mostly on the back of a surge in EV sales. Adamas forecasts that global shortages of NdFeB alloys and powders will amount to 66,000t a year by 2030 and 206,000t annually by 2035, almost one-third of the total market. From 2022 through to 2035, it forecasts that global demand for NdFeB magnets will jump at a compound annual growth rate (CAGR) of 8.6%, underpinned by double-digit growth from the EV and wind power sectors. However, over the same period it forecasts that global production of neodymium, praseodymium, dysprosium and terbium will collectively increase at a slower CAGR of only 5.4%.

The mismatch between demand and supply has already led to a jump in REE prices and it could get worse in coming years as new mined supply is unable to keep pace with surging demand.

The cost of the PrNd alloy – which makes up the majority of rare earth magnets – has jumped by more than 30% since January 2022 and skyrocketed by more than 300% since May 2020, according to TradingEconomics.com. The average neodymium oxide price was about $50 per kilogram (/kg) in 2020, $100/kg in 2021 and $160/kg in the first quarter of 2022.

Obstacles to rare earth production

There are two key issues with the production of REEs. First, all the rare earth deposits are mixed together, so it is hard and expensive for processors to separate them and to take advantage of their individual properties (and to split up the more valuable ones, such as terbium, from those of little value, like lanthanum). Second, REEs are bound up in mineral deposits with the low-level radioactive element, thorium, exposure to which has been linked to an increased risk of developing lung and pancreatic cancer. These obstacles create a huge challenge for any Western company that wants to become involved in the industry.

“China is the largest supplier and refiner of rare earth elements, but rare earth metals are very common,” says Scott Cassel, chief executive officer and founder of the Product Stewardship Institute, a non-profit organisation based in Boston, Massachusetts. “The mining and refining come with a lot of environmental concerns that have not made it appealing to other nations.

“If price continues to climb it will create an opportunity for replacement materials and mining of deposits of rare earth metals in areas outside of China. The real short-term gap may be the lack of processors outside of China. If prices continue to climb or stabilise at the high price, there will be a strong incentive for other nations with proven deposits to begin mining and processing.”

What now for China's rare earths strategy?

For three decades, the Chinese government has had a strategic vision for the REE industry – something the West has lacked – and it now dominates the supply chain. In 2021, China made up 54% of global REE mine supply, followed by North America at 18%, the rest of Asia at 14%, Australia at 12% and Europe at 2%, according to Roskill. However, its dominance of neodymium's global mine supply is higher, at 62%. In 2021, China accounted for 85% of the global supply of refined REEs, followed by the rest of Asia at 13% and Europe at 2%, according to Roskill. In the case of neodymium, it made up 84% its refined supply.

Furthermore, China has a more than 90% share of the global production of downstream rare earth products and technologies, including magnets, according to consultancy Tahuti Global.

In January 2022, China said it was creating a new state-owned enterprise, China Rare Earth Group, a ‘megafirm’ that will control 60–70% of the country's rare earth production, which amounts to 30–40% of global supply. China is also introducing new environmental standards for the industry, which could constrain supply.

"The adoption of EVs alone will require an additional 200,000t of rare earths in the next ten years," says Luisa Moreno, president of Defense Metals. "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."

The West fights back

In 2018, the US Department of Interior identified 35 critical minerals crucial for national and economic security, including the 17 REEs. Investments are needed to open or reopen rare earths mines and processing in Europe and the US, following a decade or more of underinvestment.

"The Russia/Ukraine crisis has shone the light on the resource security issues around the REE supply chain," says David Merriman, research director, rare earths, at consultancy Wood Mackenzie. "Significant investment by governments in the US, the EU and Australia is now going into rare earths production. More exploration is taking place and there is greater investment happening in processing and separating the elements.

"However, there must be further financial support throughout the supply chain to reduce dependence on China. In five years' time, I think there will be less dependence on China on the mining side as new mines become operational in other parts of the world. Dependence could fall to 45% of global supply from 50–60% today. However, China's dominance of the refining stage is likely to remain very robust for many years to come.

"There are REE projects in every corner of the world. Afghanistan has been receiving attention recently due to the existence of a rare earths deposit in that country, but there are many parts of the world where it would be more cost-effective to operate a mine."

The biggest REE mine is located in China but others operate around the world. The Bayan Obo deposit in Inner Mongolia, northern China – containing 40 million tonnes of rare earth reserves – is the world’s largest deposit. The mine has been in production since 1957 and currently accounts for more than 70% of China’s light REE production.

Mt Weld Central Lanthanide Deposit, inside an ancient collapsed volcano, in Western Australia is one of the highest-grade rare earth deposits in the world and is the largest rare earths mine outside China. It is owned by the Lynas Corporation, an Australian REE mining company, and produced 7,375t of rare earth oxides in the second half of 2021. It made a net profit after tax of $112m in the second half of 2021, a 300% increase on the same period in 2020. It plans to open a new cracking and leaching plant in Kalgoorlie in Western Australia.

In February 2021, the US Department of Defense announced a $30m agreement with Lynas Corporation to build an REE separating facility in Hondo, Texas, in partnership with San Antonio-based Blue Line. It is part of a plan to shore up the defence supply chain.

There are several other projects in Australia. Iluka, an Australian mineral sands miner, plans to spend $860m building a rare earth oxide refinery at its Eneabba operation north of Perth. Hastings Technology Metals, an Australian rare earths miner, plans to mine a 27.42 million-tonne PrNd deposit at Yangibana in northern Australia.

The Mountain Pass Mine, owned by MP Materials, a Las Vegas-based mining company, is an open-pit REE mine located on the south flank of the Clark Mountain Range, 85km south-west of Las Vegas. In 2021, it produced 42,413t, the highest annual primary rare earth production in US history.  

In North America, the only other deposit of similar size to Mountain Pass is the Wicheeda deposit – close to Prince George, Canada, and owned by Defense Metals, a mineral exploration company – but it is at least three years away from mine production.

There are at least two other projects under way in Africa. The most advanced is Pensana's in Angola. Pensana is a UK-listed rare earths miner, which plans to open Britain's first REE processing facility in Saltend in the East Riding of Yorkshire.

This year rare earths producers have seen their share prices achieve all-time highs. Soaring demand from the energy transition and strategic concerns magnified by the Ukraine invasion have prompted investors to target the sector. Western economies must cooperate to improve the whole of the REE supply chain; otherwise, China will continue to have a stranglehold over this critical industry.

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